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SECTION 5. EARNED ENTITLEMENTS FOR

RAILROAD EMPLOYEES

CONTENTS

Overview

The Retirement and Survivor Annuity Structure

Tier 1 and Tier 2 Benefits

Dual Benefit Payments

Disability Annuities

Spouse Annuities

Supplemental Annuities

Survivor Benefits

Lump-Sum Death Benefits

Program Data

Financing the System

Payroll Taxes

Financial Interchange

General Revenue Appropriations

Other Income

Income Taxation of Railroad Retirement Benefits

Financial Status of the Railroad Retirement Account

The Railroad Unemployment Insurance Program

Overview

Benefits and Eligibility Requirements

Financing

Legislative History

References

OVERVIEW

Retirement, unemployment compensation, sickness, disability,

and death benefits for railroad employees are administered by the

U.S. Railroad Retirement Board (RRB), a Federal agency

headquartered in Chicago. That these entitlement benefits for a

particular private industry are a function of Federal authority follows from actions taken during the 1930s, when threats to the stability of the nation’s railroads caused Congress to pass legislation

placing the industry’s primary employee benefit programs under

Federal law. Federal involvement in the rail industry was not unprecedented. Indeed, much of the foundation underlying the enormous success the industry enjoyed was in place because the Federal Government provided numerous incentives for early development of this first great industrial giant.

The RRB, which refers both to the agency that administers the

Federal benefits of industry employees and to the 3-member governing board that oversees its operations, maintains records on 12

million present and former railroad employees. During fiscal year

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1999, the RRB disbursed $8.2 billion in retirement and survivor

benefits to 748,000 annuitants, $33.0 million in daily compensation

to about 13,000 unemployed workers, and $36.2 million in net sickness benefits to 22,000 employees. Some $5 million was paid in

lump sums to survivors of deceased workers. Table 5–1 provides an

overview of cash benefits received by various categories of beneficiaries in November 1999. Through its payroll and beneficiary recordkeeping system, the RRB verifies the collection of taxes on payroll and benefits with the Internal Revenue Service, which in fiscal

year 1999 collected $4.5 billion in taxes on railroad payrolls and

$504 million in taxes on railroad retirement beneficiary payments.

TABLE 5–1.—MONTHLY RAILROAD RETIREMENT CASH BENEFITS IN CURRENT PAYMENT

STATUS, NOVEMBER 1999

Category of beneficiary Number Percent

of total

Average

monthly

benefit

Retired workers .............................................................. 275,100 39.3 $1,288

Disabled workers 1 ......................................................... 40,400 5.8 1,617

Spouse ............................................................................ 163,000 23.3 520

Divorced spouse ............................................................. 3,600 0.5 318

Aged widow(er)s ............................................................. 181,700 25.9 795

Disabled widow(er)s ....................................................... 5,900 0.8 689

Widowed mothers and fathers ....................................... 1,300 0.2 998

Remarried widow(er)s .................................................... 6,000 0.9 551

Divorced widow(er)s ....................................................... 9,300 1.3 560

Children .......................................................................... 14,000 2.0 661

Parents ........................................................................... 100 (2) 571

Total monthly benefits ..................................... 700,300 100.0 $961

1 Under age 65.

2 Less than 0.05 percent.

Note.—Includes tier 1, tier 2, and vested dual benefits. Excludes 142,900 supplemental employee annuities averaging $43. Total includes fewer than 10 survivor option annuities averaging $83, payable

under laws in effect before August 1946.

Source: U.S. Railroad Retirement Board.

In the House of Representatives, jurisdiction over Railroad Retirement and Unemployment Benefit Programs is divided between

two standing committees. The Transportation and Infrastructure

Committee has jurisdiction over legislation pertaining to ‘‘railroads

. . . and railroad retirement and unemployment (except revenue

measures related hereto).’’ The Subcommittee on Ground Transportation of the committee has primary responsibility for the Railroad

Retirement Act (RRA) and amendments affecting railroad retirement. The Committee on Ways and Means has jurisdiction over all

revenue measures, including the Railroad Retirement Tax Act

(chapter 22 of the Internal Revenue Code; see Research Institute,

1997). Within the Committee on Ways and Means, jurisdiction over

employment taxes and trust fund operations relating to the Railroad Retirement System lies within the Subcommittee on Social Security.

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THE RETIREMENT AND SURVIVOR ANNUITY

STRUCTURE

The Railroad Retirement System provides retirement, disability

and survivor annuities to workers whose employment was connected with the railroad industry for at least 10 years. The program is governed by the Railroad Retirement Act, Federal legislation enacted by Congress with input from all affected segments of

the rail industry system. Railroad retirement came into existence

in 1936, and was substantially modified by the Railroad Retirement Act of 1974 (Public Law 93–445) which provided for closer coordination with the Social Security System. Credits are primarily

secured by employment in the railroad industry, although any Social Security credits earned during employees’ work careers are included in the benefit computation. Benefits are financed through a

combination of employee, employer, and Federal Government contributions.

The 1974 act established three benefit components. The ongoing

benefit system was divided into two ‘‘tiers,’’ one of which approximates Social Security (tier 1) while the other provides a retirement

benefit specifically for railroad workers (tier 2). The third component, a vested dual benefit, preserved certain benefits for employees who had qualified for both railroad retirement and Social Security benefits prior to the 1974 act. About 167,000 spouses and divorced spouses of retired or disabled workers receive railroad retirement benefits. About 219,000 survivors are on the RRB annuity

rolls.

TIER 1 AND TIER 2 BENEFITS

Railroad retirement tier 1 benefits are based on the Social Security benefit formula, using the employee’s combined railroad earnings and nonrailroad Social Security covered earnings up to the Social Security maximum wage base. The tier 1 benefit is roughly

equal to what the Social Security benefit would have been had the

worker’s railroad employment been covered by the Social Security

Program. Because the tier 1 benefit is based on both Social Security and railroad employment, any Social Security benefit to which

the Railroad Retirement System beneficiary is also entitled is subtracted from the tier 1 benefit amount. Tier 1 benefits are adjusted

for the cost of living by the same percentage as Social Security benefits.

Tier 2 benefits are based entirely on the employee’s service in the

railroad industry and are payable in addition to the tier 1 benefit

amount. For current retirees, the tier 2 benefit is equal to seventenths of 1 percent of the employee’s average monthly earnings in

the 60 months of highest earnings, times the total number of years

of railroad service, less 25 percent of any employee vested dual

benefit also payable. Tier 2 benefits are automatically adjusted annually at a rate equal to 32.5 percent of the Social Security costof-living adjustment.

DUAL BENEFIT PAYMENTS

One of the chief purposes of the Railroad Retirement Act of 1974

was to coordinate railroad retirement and Social Security benefit

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payments to eliminate certain dual benefits considered to be a

‘‘windfall’’ for persons receiving benefits under both systems. This

‘‘windfall’’ was a result of the fact that the total benefit these retirees received from both systems was higher than the benefit they

would have received if their benefit were based on their total career earnings but paid only under railroad retirement. The total

benefit was higher in these cases since the Social Security benefit

formula favors workers who have low average earnings throughout

their careers. Low career average earnings result from a career of

low wages or from a relatively short career in Social Security covered employment. Workers who spent a period of time in employment covered by Social Security received the benefit of this ‘‘tilt’’

in the benefit formula, even though they may very well not have

had low career earnings.

As a result of the 1974 act, ‘‘windfall’’ benefits were eliminated

for any railroad employees not qualified for such benefits as of January 1, 1975. The benefits were generally preserved for those individuals who were vested under both railroad retirement and Social

Security before 1975. These vested dual benefits are financed by

the general revenue fund through an annual appropriation rather

than from the Social Security or Railroad Retirement Trust Funds.

They are subject to reduction during any year in which the appropriation is less than the amount required for full benefit payments.

The total appropriation for the Dual Benefits Payments Account includes an estimation of the amount collected from income taxes on

the dual benefit, with the implication that dual benefits are partially financed by income taxes on dual benefits. The fiscal year

1999 appropriation was $189,000,000, including the income tax

transfers. The fiscal year 2000 appropriation was $173,339,000, including income tax transfers. Currently paid to about 15 percent of

the Railroad Retirement Board’s beneficiaries, the average vested

dual benefit is $139 per month.

DISABILITY ANNUITIES

Disabled workers are potentially eligible for annuities under tiers

1 and 2. A worker totally and permanently disabled for all employment, and who has 10 years of creditable railroad service, is eligible for tier 1 and tier 2 benefits. As with other workers whose work

histories include periods of employment under both Social Security

and railroad retirement, totally disabled workers whose railroad

service is less than 10 years will have their rail service employment credits transferred to Social Security, with eligibility for Social Security disability insurance payments determined under that

program’s rules.

Workers at age 60 with at least 10 years service, and workers

at any age with at least 20 years service, are also eligible for an

occupational disability benefit if they become totally disabled for

their regular railroad occupation. The worker must also have a current connection to the industry, which generally means he has

worked for a railroad during at least 12 months in the immediately

preceding 30-month period.

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SPOUSE ANNUITIES

Spouses of retired or disabled railroad retirement beneficiaries

may also qualify for benefits, the amount of which may depend on

such factors as the spouse’s age and work history, and the age,

date of retirement, and years of railroad service of the railroad

worker. Spouses may also qualify for benefits based on caring for

a rail worker’s unmarried or disabled child. Tier 1 spouse benefits

are based on 50 percent of the railroad worker’s tier 1 benefit. Tier

2 spouse benefits are equal to 45 percent of the retired or disabled

worker’s tier 2 benefit. Divorced spouses may also be eligible for

benefits from tier 1, but not from tier 2, unless a divorce decree so

specifies.

SUPPLEMENTAL ANNUITIES

Supplemental annuities, provided under the 1974 act, equal $23

for 25 years of service plus $4 for each additional year up to a maximum of $43 per month. However, as a result of the 1981 Omnibus

Budget Reconciliation Act (OBRA), employees first hired after October 1, 1981, are not eligible for supplemental annuities when they

retire.

SURVIVOR BENEFITS

Annuities may be payable under both tiers to surviving spouses,

children, and certain other beneficiaries. With the exception of the

lump-sum death benefit (discussed below), eligibility for survivor

benefits depends on whether the employee was insured under the

RRA at the time of death. An employee is insured if she has completed at least 10 years railroad service and has a current connection to the rail industry. Generally, a tier 1 survivor benefit is

based on the worker’s combined Social Security and railroad retirement wage credits, and is payable under the same conditions and

is equivalent to a similar benefit payable from Social Security. The

tier 2 widow(er) benefit is generally equal to 50 percent of the deceased worker’s tier 2 retirement benefit.

LUMP-SUM DEATH BENEFITS

Lump-sum death benefits are paid when there is no person eligible for a monthly survivor benefit in the month in which the worker died. Generally, 10 years of railroad service and a current connection with the railroad industry are required for eligibility. For

employees with 10 or more years of railroad service before 1975,

the amount of the benefit is based on the 1937 act. For all other

railroad workers, the amount is equivalent to that which would be

paid under the Social Security Act (unless survivor benefits are

paid).

A residual lump-sum payment is, in effect, a refund of the employee’s pre-1975 railroad retirement taxes plus an allowance in

lieu of interest, less benefits already paid. This payment is not

made as long as monthly benefits are payable either at the time

of the employee’s death or in the future. However, a widow(er) or

parent under age 60 can waive rights to future monthly benefits

in order to receive a residual payment.

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PROGRAM DATA

Table 5–2 summarizes railroad retirement benefits paid and the

number of recipients in selected fiscal years 1950–99. The table

shows that the number of beneficiaries increased until about the

mid-1970s and declined thereafter. Similarly, as shown by the

TABLE 5–2.—TOTAL BENEFIT PAYMENTS AND NUMBER OF BENEFICIARIES, SELECTED

FISCAL YEARS 1950–99

Fiscal year

Benefit payments (in millions) 1 Beneficiaries (in thousands) 2

Total

Retirement Survivor Total Retirement Survivor Current

dollars

Constant

1999 dollars 3

1950 ...... $301.6 $2,463.6 $248.2 $53.4 458 272 189

1955 ...... 549.7 3,735.5 424.5 125.2 700 452 252

1960 ...... 925.7 5,225.8 711.5 214.2 873 584 299

1965 ...... 1,117.7 5,659.8 834.0 283.7 980 650 340

1970 ...... 1,593.5 6,465.4 1,177.0 416.5 1,051 702 366

1975 ...... 3,060.3 8,710.9 2,222.4 837.9 1,094 733 380

1980 ...... 4,730.6 9,119.8 3,389.8 1,340.8 1,084 731 367

1981 ...... 5,286.6 9,226.9 3,779.9 1,506.7 1,074 726 363

1982 ...... 5,725.5 9,352.3 4,097.9 1,627.6 1,067 722 359

1983 ...... 6,041.1 9,419.7 4,354.2 1,686.9 1,056 715 357

1984 ...... 6,099.8 9,074.7 4,417.8 1,682.0 1,040 705 351

1985 ...... 6,250.9 8,994.2 4,539.3 1,711.6 1,023 694 343

1986 ...... 6,329.5 8,893.4 4,608.1 1,721.4 1,007 684 339

1987 4 .... 6,520.3 8,919.7 4,773.6 1,746.7 994 675 333

1988 ...... 6,675.9 8,853.9 4,915.0 1,760.9 981 666 328

1989 ...... 6,938.5 8,862.1 5,140.9 1,797.6 967 659 322

1990 ...... 7,194.6 8,885.7 5,357.0 1,837.6 951 650 315

1991 ...... 7,490.8 8,877.7 5,593.2 1,897.6 932 638 307

1992 ...... 7,693.9 8,847.1 5,754.0 1,939.9 913 626 301

1993 ...... 7,872.3 8,817.9 5,896.0 1,976.2 898 615 298

1994 ...... 7,978.9 8,746.5 5,978.9 1,999.9 874 599 288

1995 ...... 8,059.2 8,633.0 6,042.9 2,016.3 847 582 282

1996 ...... 8,113.6 8,496.6 6,089.1 2,024.4 818 565 272

1997 ...... 8,205.7 8,438.6 6,166.3 2,039.4 800 549 263

1998 ...... 8,246.6 8,385.9 6,199.0 2,047.5 772 530 254

1999 ...... 8,248.5 8,248.5 6,207.2 2,041.3 748 514 246

1 Retirement benefits include tier 1 and tier 2 employee and spouse benefits, employee and spouse

vested dual benefits, and supplemental employee annuity payments. Survivor benefits include tier 1 and

tier 2 benefits, vested dual benefits and lump-sum payments. Total benefits include hospital insurance

benefits for services in Canada. 2 Number of beneficiaries represents all individuals paid benefits in each year. In the total number for

each year, beneficiaries are counted only once, even though they may have received more than one type

of benefit. In fiscal year 1999, about 12,000 individuals received both retirement and survivor benefits.

Figures are partly estimated. 3 1999 dollars were calculated using the Office of Management and Budget’s composite outlay deflator;

see Executive Office of the President (2000), table 10.1. 4 Benefits paid for fiscal years beginning 1987 are not strictly comparable to those for prior years due

to a change in accounting systems.

Source: U.S. Railroad Retirement Board.

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constant dollar column in table 5–2, after rapid increases between

1950 and about 1975, total benefit payments increased at a modest

rate until the early 1980s and then actually declined by about $1.4

billion over the next 15 years.

Table 5–3 presents data on new awards for November 1999.

TABLE 5–3.—NUMBER AND AVERAGE AMOUNT OF NEW AWARDS, NOVEMBER 1999

Beneficiary type Number Average

amount

Employee annuities:

Retired workers .......................................................................... 656 $1,755

Disabled workers (under age 65) .............................................. 344 1,818

Spouse ............................................................................................ 687 599

Divorced spouse .............................................................................. 31 278

Survivor benefits:

Aged widow(er)s ......................................................................... 758 963

Disabled widow(er)s ................................................................... 14 946

Widowed mothers and fathers ................................................... 18 864

Divorced and remarried widow(er)s ........................................... 108 620

Children ...................................................................................... 74 817

Parents ....................................................................................... 0 0

Insurance lump sums ................................................................ 437 865

Residual payments ..................................................................... 8 4,326

Total .................................................................................. 3,135 ..............

Source: U.S. Railroad Retirement Board.

FINANCING THE SYSTEM

Railroad retirement and survivor benefits are financed by five

sources of income: (1) payroll taxes on railroad earnings paid by

covered employees and employers up to a certain maximum wage

base; (2) income from the Social Security financial interchange; (3)

appropriations from general revenues (including transfers of income taxes collected on benefits); and (4) other income, including

income from investments and the 261⁄2 cents-per-hour tax levied on

every hour of employment in the rail industry.

PAYROLL TAXES

The primary source of income to the Railroad Retirement Account is payroll taxes levied on covered employers and their employees. These taxes are imposed on wages below an annual maximum amount, known as the ‘‘wage base.’’ Currently, both employers and employees pay a tier 1 tax which is equivalent to the combined Social Security (old-age, survivors and disability insurance)

and hospital insurance (part A of Medicare) tax rate. In addition,

a tier 2 tax is paid by both rail employers and employees. The 2000

annual tier 1 and tier 2 wage bases are $76,200 and $56,700, respectively. Since 1994, there has been no wage limit for the hospital insurance portion of the tax (1.45 percent on employers and

employees, each). Thus, this tax is imposed on all wages. The

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scheduled tax rates for both tier 1 and tier 2 are shown in table

5–4.

TABLE 5–4.—SCHEDULED TAX RATES FOR TIER 1 AND TIER 2, SELECTED YEARS 1975–

2005

Year

Tier 1 Tier 2 Combined 2

EmployerEmployee Wage base 1 EmployerEmployee Wage base Employer Employee

1975 5.85 5.85 $14,100 9.5 0 $14,100 15.35 5.85

1980 6.13 6.13 25,900 9.5 0 20,400 15.63 6.13

1985 7.05 7.05 39,600 13.75 3.50 29,700 20.80 10.55

1986 7.15 7.15 42,000 14.75 4.25 31,500 21.90 11.40

1987 7.15 7.15 43,800 14.75 4.25 32,700 21.90 11.40

1988 7.51 7.51 45,000 16.10 4.90 33,600 23.61 12.41

1989 7.51 7.51 48,000 16.10 4.90 35,700 23.61 12.41

1990 7.65 7.65 51,300 16.10 4.90 38,100 23.75 12.55

1991 7.65 7.65 53,400 16.10 4.90 39,600 23.75 12.55

1992 7.65 7.65 55,500 16.10 4.90 41,400 23.75 12.55

1993 7.65 7.65 57,600 16.10 4.90 42,900 23.75 12.55

1994 7.65 7.65 60,600 16.10 4.90 45,000 23.75 12.55

1995 7.65 7.65 61,200 16.10 4.90 45,300 23.75 12.55

1996 7.65 7.65 62,700 16.10 4.90 46,500 23.75 12.55

1997 7.65 7.65 65,400 16.10 4.90 48,600 23.75 12.55

1998 7.65 7.65 68,400 16.10 4.90 50,700 23.75 12.55

1999 7.65 7.65 72,600 16.10 4.90 53,700 23.75 12.55

2000 7.65 7.65 76,200 16.10 4.90 56,700 23.75 12.55

2001 7.65 7.65 80,100 16.10 4.90 59,400 23.75 12.55

2002 7.65 7.65 83,700 16.10 4.90 62,400 23.75 12.55

2003 7.65 7.65 87,300 16.10 4.90 64,800 23.75 12.55

2004 7.65 7.65 90,600 16.10 4.90 67,200 23.75 12.55

2005 7.65 7.65 93,900 16.10 4.90 69,900 23.75 12.55

1 The wage base for the 1.45-percent hospital insurance tax, included in the 7.65-percent tier 1 rate,

is $125,000 in 1991, $130,200 in 1992, $135,000 in 1993, and no limit in 1994 and later. 2 These rates apply only up to the tier 2 maximum wage base.

Note.—Wage bases for years 2001–5 are projected.

Source: U.S. Railroad Retirement Board.

The tier 1 wage base is equal to the Social Security wage base

and automatically increases with wage growth in the economy. The

tier 2 wage base is equal to what the Social Security wage base

would have been without regard to the ad hoc increases in the

wage base which were created by the Social Security Amendments

of 1977 (Public Law 95–215).

FINANCIAL INTERCHANGE

The Railroad Retirement System and the Social Security Programs have been coordinated financially since 1951. The purpose

of the financial interchange is to place the Social Security Trust

Funds in the same position they would have been in if railroad employment had been covered under Social Security since its inception.

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Generally, under the interchange, for a given fiscal year the revenue that would have been collected by the Social Security Trust

Funds if railroad employment had been covered directly by Social

Security is netted against the amount of benefits Social Security

would have paid to railroad beneficiaries based on railroad and

nonrailroad earnings during that period. Where Social Security

benefits that would have been paid exceed income to the trust

funds that would have been due, the excess, plus an allowance for

interest and administrative expenses, is transferred from the Social

Security Trust Funds to the Railroad Retirement Board’s (RRB) Social Security Equivalent Benefit Account. If income exceeds benefits, the transfer would be from the RRB’s Social Security Equivalent Benefit Account to the Social Security Trust Funds. (Before

1985, transfers were to or from the Railroad Retirement Account.)

The determination of the amount to be transferred through the

financial interchange for a given fiscal year is made no later than

June of the year following the close of the preceding fiscal year.

Table 5–5 shows the actual operation of the financial interchange

for selected years as it relates to each of the three major Social Security Trust Funds.

In order to make funds available to the Social Security Equivalent Benefit Account from the forthcoming financial interchange on

a more current basis, the Railroad Retirement Solvency Act of 1983

provided for transfers from general Treasury funds to the Social

Security Equivalent Benefit Account each month. The amount

transferred each month equals the Social Security benefits paid

from the account during the month less the Social Security taxes

received by the account in that month. The amount so transferred

for a particular month is repaid when the Social Security System

makes reimbursement for that month under the financial interchange program.

GENERAL REVENUE APPROPRIATIONS

Vested dual benefits are funded solely through general revenue

appropriations. The Congress authorized such funding through the

year 2000 in the 1974 act that substantially reformed the Railroad

Retirement System. The total appropriated for the first 24 fiscal

years 1976–99 for which these benefits were payable was $7.51 billion.

The Omnibus Budget Reconciliation Act of 1981 (Public Law 97–

35) established a Dual Benefits Payments Account. Each year an

amount which is appropriated for the payment of vested dual benefits is placed in this account. If the amount appropriated is insufficient to pay the full vested dual benefits to all eligible beneficiaries

for a full year, the Railroad Retirement Board is authorized to prorate payments from the dual benefits account so that the amounts

paid do not exceed the amounts appropriated.

In addition to amounts transferred to the Dual Benefits Payments Account through the regular appropriations process, the

Railroad Retirement Solvency Act of 1983 provided for the appropriation of approximately $1.7 billion to the Railroad Retirement

Account in three installments paid on January 1, 1984, 1985, and

1986. These three appropriations were to reimburse the Railroad

Retirement Account for prior shortfalls in annual appropriations.

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The actual amounts received, including interest, totaled $2.128 billion. This amount is not included in the figure given above for total

appropriations between 1976 and 1999.

TABLE 5–5.—AMOUNTS TRANSFERRED TO OR FROM (¥) THE SOCIAL SECURITY EQUIVALENT BENEFIT ACCOUNT 1 AND THE VARIOUS SOCIAL SECURITY TRUST FUNDS IN

SELECTED FISCAL YEARS 1954–99

[In millions of dollars]

Fiscal year Old age and survivors insurance

Disability

insurance

Hospital

insurance Total

Through June 30, 1954 ..... ¥$21.1 ................. .................. ¥$21.1

1955 .................................. ¥7.4 ................. .................. ¥7.4

1960 .................................. 318.4 ¥$4.9 .................. 313.5

1965 .................................. 435.6 23.6 .................. 459.3

1970 .................................. 578.8 10.4 ¥$63.5 525.7

1975 .................................. 981.8 28.5 ¥132.5 877.8

1980 .................................. 1,442.0 ¥12.1 ¥244.3 1,185.6

1981 .................................. 1,584.9 29.4 ¥276.5 1,337.9

1982 .................................. 1,793.3 26.4 ¥351.4 1,468.2

1983 .................................. 2,250.8 27.8 ¥357.7 1,920.9

1984 .................................. 2,404.0 21.6 ¥350.6 2,075.0

1985 .................................. 2,310.2 42.7 ¥371.4 1,981.5

1986 .................................. 2,585.1 67.7 ¥364.4 2,288.4

1987 .................................. 2,557.3 56.9 ¥368.0 2,246.2

1988 .................................. 2,790.0 61.3 ¥363.8 2,487.5

1989 .................................. 2,845.3 88.2 ¥378.8 2,554.7

1990 .................................. 2,969.3 79.9 ¥367.4 2,681.8

1991 .................................. 3,374.6 82.1 ¥352.2 3,104.5

1992 .................................. 3,148.4 58.0 ¥374.5 2,831.9

1993 .................................. 3,352.5 82.8 ¥400.5 3,034.9

1994 .................................. 3,419.6 106.0 ¥412.9 3,112.6

1995 .................................. 4,052.3 67.8 ¥396.1 3,724.1

1996 .................................. 3,554.1 2.2 ¥401.3 3,154.9

1997 .................................. 3,688.1 59.1 ¥419.1 3,328.1

1998 .................................. 3,662.2 156.8 ¥419.4 3,399.7

1999 .................................. 3,681.4 134.6 ¥429.9 3,386.1

Total ......................... 72,034.9 1,592.2 ¥8,690.6 64,936.5

1 Before 1985, transfers were to or from the Railroad Retirement Account.

Source: U.S. Railroad Retirement Board.

OTHER INCOME

Funds not needed immediately for benefit payments are invested

in interest-bearing securities. During fiscal year 1999, the Railroad

Retirement Account and Social Security Equivalent Benefit Account received $962.7 million in investment income, and $689.6

million in gains on the sale of investments.

A cents-per-hour tax is used to fund the supplemental annuity

benefit. This tax is levied solely on employers. The rate, 261⁄2 cents

per work hour in January 2000, is determined quarterly by the

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Railroad Retirement Board and is set at a level necessary to fund

the benefit on a pay-as-you-go basis.

INCOME TAXATION OF RAILROAD RETIREMENT

BENEFITS

Prior to 1984, railroad retirement benefits, with the exception of

supplemental annuities, were not subject to Federal income taxation. However, as a result of the Railroad Retirement Solvency

Act (Public Law 98–76) and the Social Security Act Amendments

of 1983 (Public Law 98–21), tier 1, tier 2, and vested dual benefits

received after December 31, 1983, are subject to taxation. The taxation provisions were subsequently amended by the Consolidated

Omnibus Budget Reconciliation Act of 1985, the Tax Reform Act of

1986, and the Omnibus Budget Reconciliation Act of 1993. Under

current law, the Social Security equivalent portions of tier 1 benefits are taxed in a manner identical to Social Security benefits. The

proceeds derived from the taxation under pre-OBRA 1993 rules of

those tier 1 benefits which are equivalent to Social Security benefits are deposited in the Social Security Equivalent Benefit Account

and credited to the Social Security Trust Funds through adjustments in the financial interchange. The additional income taxes attributable to OBRA 1993 are deposited in the Hospital Insurance

Trust Fund. Tier 1 benefits in excess of Social Security equivalent

levels (including early retirement benefits payable at ages 60–61

and occupational disability annuities) and tier 2 benefits are taxed

in a manner identical to private and public service pensions and

the proceeds deposited in the Railroad Retirement Account. Vested

dual benefits are taxed like private and public service pensions

with the proceeds deposited in the Dual Benefits Payments Account.

The Omnibus Budget Reconciliation Act of 1987, which increased

tier 2 payroll tax rates in January 1988 by a total of 2 percentage

points, also allowed revenues from Federal income taxes on tier 2

railroad retirement benefits to be returned to the Railroad Retirement System until October 1, 1989; later legislation extended the

date to October 1, 1990, and then to October 1, 1992. Subsequent

legislation in 1994 extended these transfers on a permanent basis.

FINANCIAL STATUS OF THE RAILROAD RETIREMENT

ACCOUNT

One of the most important factors affecting the financial status

of the Railroad Retirement System is the level of employment in

the industry. The recent history of industry employment is shown

in table 5–6.

While the trust funds currently have a reserve of $18.2 billion,

the continuing decline in railroad employment has often prompted

questions about the financing of the Railroad Retirement System.

Section 502 of the Railroad Retirement Solvency Act of 1983 requires a report each year by the Board on the system’s actuarial

status, and financing recommendations when appropriate. The

Board’s 1999 financial report to Congress, which addressed the period 1999–2023 under optimistic, moderate, and pessimistic employment assumptions, indicated no cash flow problems over the

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25-year projection period (U.S. Railroad, 1999a). The report recommended no change in the rate of retirement tax on employers or

employees.

TABLE 5–6.—RAILROAD INDUSTRY EMPLOYMENT, SELECTED YEARS 1940–98

Year Number

(thousands)

1940 ................................................................................................................ 1,195

1945 ................................................................................................................ 1,085

1950 ................................................................................................................ 1,421

1955 ................................................................................................................ 1,239

1960 ................................................................................................................ 909

1965 ................................................................................................................ 753

1970 ................................................................................................................ 640

1975 ................................................................................................................ 548

1976 ................................................................................................................ 540

1977 ................................................................................................................ 546

1978 ................................................................................................................ 542

1979 ................................................................................................................ 554

1980 ................................................................................................................ 532

1981 ................................................................................................................ 503

1982 ................................................................................................................ 440

1983 ................................................................................................................ 395

1984 ................................................................................................................ 395

1985 ................................................................................................................ 372

1986 ................................................................................................................ 342

1987 ................................................................................................................ 320

1988 ................................................................................................................ 312

1989 ................................................................................................................ 308

1990 ................................................................................................................ 296

1991 ................................................................................................................ 285

1992 ................................................................................................................ 276

1993 ................................................................................................................ 271

1994 ................................................................................................................ 266

1995 ................................................................................................................ 265

1996 ................................................................................................................ 257

1997 ................................................................................................................ 253

1998 ................................................................................................................ 256

Source: U.S. Railroad Retirement Board.

These results reflected the favorable trend indicated by the

Board’s 20th triennial actuarial valuation of the Railroad Retirement Program’s assets and liabilities transmitted to Congress in

1997, which also projected income and outgo under three employment assumptions. The valuation concluded that, barring a sudden,

unanticipated, large drop in railroad employment, the Railroad Retirement System will experience no cash flow problems for at least

25 years. The long-term stability of the system under current law,

however, depends on actual railroad employment levels over the

coming years.

327

THE RAILROAD UNEMPLOYMENT INSURANCE

PROGRAM

OVERVIEW

The Railroad Unemployment Insurance System has been in existence since 1938. Railroad workers were initially covered by the

unemployment provisions of the Social Security Act of 1935. However, the Railroad Unemployment Insurance Act (Public Law 75–

722) was passed in 1938 to provide a uniform unemployment insurance system for all railroad workers, regardless of the State in

which they worked or lived. This action was taken largely because

of administrative problems in handling claims for railroad workers

who earned wages in a number of States and as a result of the railroad unions’ desire that individuals throughout the industry be

treated the same for purposes of unemployment compensation.

Table 5–7 summarizes program characteristics of the Railroad

Unemployment Program for selected years between 1970 and 1999.

The table also contains projected statistics for 2000 and 2001.

BENEFITS AND ELIGIBILITY REQUIREMENTS

A new benefit year for unemployment and sickness benefits begins every July 1. To qualify in the benefit year beginning July 1,

1999, a worker must have base year railroad earnings of at least

$2,312.50 in the preceding calendar year, not counting earnings

over $925 per month. Under the indexing provisions of the law reflecting growth in average national wages, a worker must have

base year earnings of $2,425 in calendar year 1999, not counting

earnings of more than $970 per month, to qualify in the benefit

year beginning July 1, 2000; base year earnings of $2,512.50, not

counting earnings of more than $1,005 per month, are needed to

qualify in the benefit year beginning July 1, 2001. If the base year

was the first year of railroad service, the worker also must have

worked in 5 months of that year (see table 5–8).

No benefits are payable for the first 7 days of the first claim (or

claims) for unemployment and sickness in a benefit year. This generally results in a 1-week waiting period. A claimant is normally

paid for days of unemployment or sickness over 4 in 14-day registration periods. The maximum daily benefit payable in the benefit

year which began July 1, 1999, is $46, and maximum benefits for

biweekly claims is $460; the benefit rate is increasing to $48 on

July 1, 2000.

The program offers ‘‘normal’’ and ‘‘extended’’ benefits. Qualified

workers can receive normal benefits for up to 130 days or 26

weeks, but the total may not exceed their creditable wages in the

base year. Workers with at least 10 years of railroad service may

receive up to 65 additional days or 13 additional weeks of extended

benefits.

The average duration of benefits fluctuates with the unemployment rate. In the 1940–99 period, it ranged from 7.4 to 19.1 weeks

and averaged 12.1 weeks.

TABLE 5–7.—RAILROAD UNEMPLOYMENT AND SICKNESS INSURANCE PROGRAM STATISTICS, SELECTED YEARS 1970–98

Program statistic

Benefit year ending in

1970 1975 1980 1985 1990 1993 1994 1995 1996 1997 1998 1999 2000 (est.) 

Insured unemployment (percent) 1 .......... 11 12 17 18 9 7 6 6 6 5 4 5 5 

Coverage (thousands of qualified employees) ................................................ 748 640 609 459 349 311 302 295 289 285 277 272 278 Unemployment (average daily benefit):

Current dollars ................................ $12.61 $12.68 $24.94 $24.98 2 $30.16 $32.86 $33.16 $35.78 $35.89 $40.57 $42.78 $43.81 $45.80 

In 1995 dollars 3 ............................. 46.99 35.13 46.76 35.19 35.17 34.65 34.09 35.78 NA NA NA NA NA 

Sickness (average daily benefit):

Current dollars ................................ 12.66 12.69 24.97 24.99 2 30.25 32.84 33.25 35.75 35.95 40.18 42.90 43.91 45.90 

In 1995 dollars 3 ............................. 47.18 35.17 46.82 35.20 35.27 34.63 34.19 35.75 NA NA NA NA NA 

Number of beneficiaries:

Unemployment (thousands) ............ 79.2 77.9 101.6 81.7 29.9 20.7 18.6 18.7 16.8 15.3 11.3 12.6 13.4 Sickness (thousands) ...................... 91.4 67.4 76.8 51.6 28.2 21.8 21.6 21.0 20.4 20.5 20.5 20.6 22.3 

Benefit exhaustions, normal benefits:

Unemployment (thousands) 4 .......... 6.3 4.8 11.2 16.1 5.6 4.3 4.0 2.9 3.4 2.7 2.1 2.0 2.0 

Sickness (thousands) ...................... 16.8 7.9 9.5 8.0 6.1 4.6 4.7 4.3 4.4 4.3 4.3 3.9 4.0 

Amount paid:

Unemployment (millions) 5 .............. 35.0 37.5 112.7 125.8 57.2 49.2 40.4 37.4 40.7 38.2 27.0 31.6 36.2 

Sickness (millions) .......................... 57.9 29.6 60.0 43.8 32.6 21.5 25.4 24.2 25.8 32.5 33.1 34.6 39.0 

Total tax collection:

Benefits account (millions) ............ 122.7 109.4 173.3 223.1 192.5 66.0 10.5 5.6 4.9 9.6 35.5 87.2 68.5 Administration (millions) ................ 8.2 7.3 12.9 15.2 17.2 14.8 16.5 17.4 18.0 16.1 14.3 22.8 19.3 

Outlays:

Benefits (millions) 4 ........................ 93.0 67.1 172.7 169.6 89.8 70.7 65.9 61.6 66.4 70.7 60.1 66.2 75.2 

Administration (millions) ................ 6.6 7.3 11.2 14.8 14.6 16.1 17.2 15.9 16.8 16.2 13.3 13.7 14.5 

Account balance (millions) 6 ................... 81.3 113.9 40.8 50.8 188.4 212.4 220.2 177.5 128.8 77.2 59.7 89.6 97.2 

1 Unemployment beneficiaries divided by qualified employees; does not include sickness insurance beneficiaries.2 Benefit amounts for registration periods beginning on or after October 1, 1989, were originally reduced by 5.3 percent under the Gramm-Rudman-Hollings Act. On February 

the final fiscal year 1990 Gramm-Rudman-Hollings sequestration rate of 1.7 percent was implemented for all days of unemployment and sickness after September 30, 198payments were issued on February 13, 1990. Cumulative averages do not reflect these refunds. 3 Calculated using the fiscal year CPI–X1 price index.

4 Excludes supplemental extended benefits financed from general revenues.

5 Includes benefits under title V of the Emergency Unemployment Compensation Act of 1991, as amended, which has provided extended unemployment benefits, regardless o

service. 6 Account balances do not reflect amounts due the Railroad Retirement Account. Loans were repaid in full with a $180.2 million cash repayment from the Railroad Unemplo

surance Account on June 29, 1993.

NA—Not available.Source: U.S. Railroad Retirement Board.

330

In 1946, a program of cash sickness benefits was established for

railroad workers as part of the unemployment compensation system. Sickness benefits are financed out of the same employer paid

payroll taxes used to finance unemployment compensation benefits.

A qualified railroad worker may receive sickness benefits if he files

a ‘‘statement of sickness’’ signed by a doctor that is mailed within

7 days of the first day for which a day of sickness is claimed.

TABLE 5–8.—BENEFITS UNDER THE RAILROAD UNEMPLOYMENT INSURANCE SYSTEM,

BENEFIT YEARS 1998–99, 1999–2000 AND 2000–2001

Benefit category Benefit amount

Qualifying wages:

Base year 1997 .................................................. $2,225.00

Base year 1998 .................................................. $2,312.50

Base year 1999 .................................................. $2,425.00

Daily benefit rate: Basic rate ..................................... 5 percent of base year monthly

compensation base

Maximum:

Benefit years 1998–99 .............................. $44.00

Benefit years 1999–2000 .......................... $46.00

Benefit years 2000–2001 .......................... $48.00

Minimum guarantee ........................................... $12.70

Maximum normal benefits: 1

For 14-day period:

Benefit years 1998–99 .............................. $440

Benefit years 1999–2000 .......................... $460

Benefit years 2000–2001 .......................... $480

For benefit year:

Duration ..................................................... 130 compensable days.

Amount: 1

Benefit years 1998–99 ..................... $5,720

Benefit years 1999–2000 ................. $5,980

Benefit years 2000–2001 ................. $6,240

Maximum extended benefits:

10 or more years’ service:

Duration ..................................................... 65 compensable days.

Amount:

Benefit years 1998–99 ..................... $2,860

Benefit years 1999–2000 ................. $2,990

Benefit years 2000–2001 ................. $3,120

1 Not to exceed the employee’s taxable earnings in the base year counting earnings up to $1,150 a

month for benefit years 1998–99 (base year 1997), $1,195 a month for benefit years 1999–2000 (base

year 1998), and $1,253 a month for benefit years 2000–2001 (base year 1999).

Note.—Some net sickness benefit payments are somewhat less than the above amounts since they are

subject to tier 1 railroad retirement taxes.

Source: U.S. Railroad Retirement Board.

A rail worker who is unemployed due to a strike not in violation

of the Railway Labor Act of 1926 can receive unemployment compensation benefits after a 14-day waiting period. Unemployment

benefits cannot be paid to individuals participating in a strike that

is in violation of the Railway Labor Act, and is therefore ‘‘illegal.’’

331

Individuals who are unemployed due to an ‘‘illegal’’ strike, but who

are not actually participating in the strike, are eligible for unemployment compensation benefits but are subject to the 14-day waiting period.

Total expenditures for unemployment and sickness payments

were $66 million in benefit years 1998–99, which was 0.5 percent

of total wages paid by the industry during the same period. This

compares to a peak of 5.1 percent in 1959. It is also much lower

than in benefit year 1983, a recession year, when the figure was

3.9 percent. Since the beginning of sickness benefits, unemployment benefits have comprised over two-thirds of total payments.

However, in 1999 they accounted for 48 percent of the total.

Benefit payments vary directly with the insured unemployment

rate, covered employment, average weekly benefit amount, and average duration of benefits. The insured unemployment rate is the

percentage of workers qualified under the Railroad Unemployment

Compensation System Program who drew benefits in a particular

benefit year. The railroad insured unemployment rate has been

high and volatile since the beginning of the program, averaging 13

percent. Since 1946 it has ranged from a relatively low 4 percent

to 30 percent in benefit years 1982–83.

Changes in covered employment have short-run and long-run effects on the unemployment program. In the short run, when layoffs

cause employment to decline, the insured unemployment rate and

benefits paid increase. In the long run, when employers have fewer

workers to lay off, benefits decline and the program shrinks. Since

the peak of 1,680,000 workers in calendar year 1945, average railroad employment declined to 256,000 in 1998. Two-thirds of this

decline occurred in the 21 years between 1945 and 1966. Thus, the

average annual decline through 1966 was 45,000, but after 1966 it

was 15,000.

FINANCING

The Railroad Unemployment and Sickness Benefit Programs are

financed by payroll taxes on railroad employers (U.S. Railroad Retirement Board, 1997). Employees do not pay railroad unemployment taxes. The taxable earnings base in calendar year 2000 is the

first $1,005 of each employee’s monthly earnings. The earnings

base is indexed each year by a rate which is equal to approximately

two-thirds of the cumulative increase in the maximum base for

railroad retirement tier 1 taxes since 1984.

Experience-based tax rates, in which employers with higher levels of unemployment pay somewhat higher rates, were phased in

on a partial basis in 1991 and 1992, and then became fully effective

in 1993 with a minimum of 0.65 percent and a maximum of 12 percent. The future maximum rate could be 12.5 percent if a maximum surcharge is in effect.

Railroad unemployment taxes are collected by the Railroad Retirement Board. Of each year’s tax receipts, an amount equal to

0.65 percent of taxable payroll is set aside for administration. Excess funds allocated but not needed for administration are transferred to the Railroad Unemployment Insurance Account at the end

of each fiscal year.

332

The Railroad Unemployment Insurance and Railroad Unemployment Insurance Administration Accounts are part of the Federal

Unemployment Trust Fund. This trust fund has 53 State Unemployment Compensation Program accounts, 4 Federal accounts, and

the 2 railroad accounts.

Since 1959, the Railroad Unemployment Trust Fund has been

able to borrow funds from the railroad pension fund when employer

taxes have not been sufficient to cover the costs of unemployment

and sickness benefits. The unemployment program became depleted for the first time in 1960 after a long decline from peak reserves of nearly 18 percent of total annual wages in 1948. By 1963,

it owed the retirement account $314 million, or 5.9 percent of total

annual wages paid in the industry that year. The program gradually recovered during the 1960s until it had positive reserves again

in 1974. The reserves were depleted again in 1976–78 and loans

were again required beginning in 1981.

A rapid decline in 1981–82 in railroad employment during a recession resulted in substantial borrowing from the pension system.

The borrowing reached a peak level of over $850 million at the end

of 1986. This debt was repaid in full with a $180.2 million cash repayment from the Railroad Unemployment Insurance Account on

June 29, 1993. Interest on the loan during the debt period was

charged at the average rate earned by U.S. Treasury securities

held by the retirement account so that the retirement account did

not lose any investment earnings as a result of the loan.

Financial measures to assist the Railroad Unemployment Insurance Account were included in the Railroad Retirement Solvency

Act of August 12, 1983. The Solvency Act raised the taxable limit

on monthly earnings and the base-year qualifying amount. The

waiting period for benefits during strikes was increased from 7 to

14 days. A temporary repayment tax on railroad employers began

July 1, 1986, to initiate repayment of the loans made by the Railroad Retirement Account.

The 1983 legislation also mandated the establishment of a Railroad Unemployment Compensation Committee (1984) to review the

unemployment and sickness benefit programs and submit a report

to Congress. The Committee reviewed all aspects of the Railroad

Unemployment Insurance System, especially repayment of the system’s debt to the Railroad Retirement Account and the viability of

transferring railroad unemployment benefit payments to State programs.

The Consolidated Omnibus Budget Reconciliation Act of April

1986 (Public Law 99–272) amended the temporary unemployment

insurance loan repayment tax beginning July 1, 1986, continued

authority for borrowing by the Railroad Unemployment Insurance

Account from the Railroad Retirement Account, and provided a contingency surtax on rail employers if further borrowing took place.

The 1988 Technical and Miscellaneous Revenue Act Railroad Unemployment Insurance Amendments were based on the recommendations of the Railroad Unemployment Compensation Committee. The 1988 amendments improved financing by indexing the

tax base to average national wages and experience rating employer

contributions. Repayment of the unemployment system’s debt to

the retirement system was assured by fixing the loan repayment

333

tax at 4 percent of the contribution base and retaining this elevated tax rate until the debt was fully repaid with interest on June

29, 1993.

A contingency surtax (3.5 percent), effective in the event of further borrowing by the Railroad Unemployment Insurance Account,

was eliminated in 1991. Instead, a surcharge will be added to employers’ unemployment insurance taxes for a calendar year if the

balance in the unemployment insurance account on the previous

June 30 goes below $100 million (as indexed). The surcharge rate

would be 1.5, 2.5, or 3.5 percent depending on how low the balance

had fallen. If a 3.5-percent surcharge goes into effect for a given

year, the maximum rate for any employer would be 12.5 percent

rather than 12 percent. If the account balance on the preceding

June 30 is above $250 million (as indexed), the excess will be refunded to the employers in the form of a rate reduction for the year

through a pooled credit.

In late 1996, Congress enacted H.R. 2594, the Railroad Unemployment Insurance Amendments Act of 1996 (Public Law 104–

251). Among other provisions, this law raised daily benefit rates for

retirement and sickness benefits and revised the formula for indexing future rates. The act shortened the waiting period for initial

unemployment and sickness benefits, cut the weeks of extended

benefits payable to rail workers with more than 15 years’ service,

and established an earnings test for workers with days of employment as well as unemployment or sickness during each 2-week registration period.

The Board is required to make annual financial reports to Congress on the status of the Unemployment Insurance System. The

reports must include any recommendations for financing changes

which might be advisable, specifically with regard to rates of employer contributions.

The 1999 report (U.S. Railroad, 1999b) states that experiencebased contribution rates, phased in during 1991–92, will keep the

system solvent, except under the most pessimistic employment assumption. Even then, the account experiences only a small, shortterm cash flow problem with quick repayment of the loans. While

employer contribution rates included a surcharge of 1.5 percent

during 1998 and 1999, there is no surcharge in 2000. The report

also projected that during the 11-year projection period (fiscal years

1998–2009), average employer contribution rates would remain

well below the maximum, even under the most pessimistic assumptions. The Board therefore recommended no changes to the system.

LEGISLATIVE HISTORY

In the final quarter of the 19th century, railroad companies were

among the largest in America. It was in the rail industry that the

first industrial pension was established in 1874. By the mid-1920s

more than 80 percent of all rail workers were covered by pension

plans. In the early 1930s these pension plans began to face enormous financial problems. The commercial success of the rail industry peaked in the period between 1900 and 1920, and rail employment decreased significantly in the 1920s.

Rail pension plans were for the most part poorly constructed.

There was no regulation of railroad pensions and plans were freVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00333 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.005 WAYS3 PsN: WAYS3
334

quently terminated, pension funds were chronically underfinanced,

and most funds could not survive the financial pressures of the depression. These problems plus a tradition of Federal regulation of

the railroads led to the enactment of the Railroad Retirement Act

of 1934.

The original Railroad Retirement System was structured to provide annuities to retirees based on rail earnings and length of service. Benefits were disbursed for retirees at age 65, although workers with 30 years of service could retire at 60, with a reduction in

payments. The original disability provisions were very stringent.

Little was provided for dependents, and nothing for spouses.

The Railroad Retirement System has been modified many times

by Congress. In the late 1940s and 1950s benefits were liberalized,

and the Railroad Retirement System was brought into closer conformity with Social Security. For instance, in 1946, benefits were

extended to survivors, based on combined railroad and Social Security covered employment. This extension demonstrated congressional concern for the social goal of providing income security in old

age, or social insurance, rather than simply rewarding career performance.

In the 1970s and 1980s, the Railroad Retirement System encountered recurrent financial crises as a result of employment declines

in the industry, inflation, and more beneficiaries. Major legislation

was enacted in 1974, 1981, 1983, and 1987 to prevent the system

from becoming insolvent.

The Railroad Retirement Solvency Act of 1983 (Public Law 98–

76) increased payroll taxes on employers and employees, deferred

cost-of-living increases, reduced early retirement benefits, subjected

benefits to Federal income taxes, and provided other measures designed to improve railroad retirement financing. Without the enactment of this legislation, the Railroad Retirement Board would have

been required to substantially reduce benefit payments in 1983.

Since enactment of the 1983 legislation, the trust funds have accumulated a reserve of $18.2 billion.

The Omnibus Budget Reconciliation Act (OBRA) of 1987 (Public

Law 100–203) increased tier 2 tax rates in January 1988 by a total

of 2 percent: 1.35 percent on employers and 0.65 percent on employees. In addition, the law extended for 1 year, until October 1,

1989, the time during which revenues from Federal income taxes

on tier 2 railroad retirement benefits could be transferred from the

general fund of the U.S. Treasury to the Railroad Retirement Account for use in paying benefits.

Railroad retirement amendments were included with railroad unemployment insurance amendments in the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100–647). This legislation assured repayment of the Railroad Unemployment Insurance

Account’s debt to the Railroad Retirement Account by extending a

temporary unemployment insurance tax until the debt was fully repaid with interest in 1993. Public Law 100–647 also eased work restrictions and the crediting of military service in certain cases and

provided more equitable treatment of severance pay for railroad retirement purposes.

The Omnibus Budget Reconciliation Act of 1989 (Public Law

101–239) included a number of railroad retirement and Social SeVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00334 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.005 WAYS3 PsN: WAYS3
335

curity provisions which affected payroll taxes and benefits beginning in 1990. The law increased the amount of earnings subject to

Social Security and railroad retirement payroll taxes by including

contributions to 401(k) deferred compensation plans in the measure

of average wages, which is used to index the wage base. It also extended for 1 additional year, until October 1, 1990, the time during

which revenues from Federal income taxes on tier 2 railroad retirement benefits may be transferred to the Railroad Retirement Account for use in paying benefits.

The Omnibus Budget Reconciliation Act of 1990 (Public Law

101–508) further extended the date of this transfer until October

1, 1992, and also permanently exempted supplemental annuities

from reductions under the Gramm-Rudman deficit reduction measures adopted by Congress.

The Omnibus Budget Reconciliation Act of 1993 (Public Law

103–66) made all Social Security and railroad retirement tier 1

earnings subject to the Medicare payroll tax, and, for those with

higher incomes, made a larger amount of Social Security and railroad retirement tier 1 benefits subject to Federal income tax. A

provision in the Social Security Administrative Reform Act of 1994

(Public Law 103–296) extended on a permanent basis the transfer

to the Railroad Retirement Trust Funds of Federal income taxes on

tier 2 railroad retirement benefits and a retroactive payment was

made, covering the period October 1, 1992 through September 30,

1994.

The continuing decline in rail employment has raised questions

concerning the practicality of relying on payroll tax funding in the

next century. The Committee on Ways and Means included in the

1987 reconciliation bill a provision which established a Commission

on Railroad Retirement Reform for the purpose of conducting a

comprehensive study of the issues pertaining to the long-term financing of the Railroad Retirement System. The Commission

(1990) unanimously concluded that the program ‘‘. . . is financially

sound in the intermediate term’’ (p. 5). The report adds that it is

not unlikely that the system would remain sound for the next 75

years.

REFERENCES

Commission on Railroad Retirement Reform. (1990, September).

Final report. Washington, DC: Author.

Executive Office of the President. (2000). Budget of the United

States Government: (Historical Tables; ISBN 0–16–050238–1).

Washington, DC: U.S. Government Printing Office.

Railroad Unemployment Compensation Committee. (1984, June).

Report of the Railroad Unemployment Compensation Committee. Washington, DC: Author.

Research Institute of America. (1997). Complete internal revenue

code. New York: Author.

U.S. Railroad Retirement Board. (1997, August). Twentieth actuarial valuation of the assets and liabilities under the Railroad

Retirement Acts as of December 31, 1995. Washington, DC: Author.

U.S. Railroad Retirement Board. (1999a, June). Annual actuarial

report required by Railroad Retirement Act of 1974 and RailVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00335 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.005 WAYS3 PsN: WAYS3
336

road Retirement Solvency Act of 1983. Washington, DC: Author.

U.S. Railroad Retirement Board. (1999b, June). Annual Report (on

the financial status of the Railroad Unemployment Insurance

System) as required by the Technical and Miscellaneous Revenue Act of 1988. Washington, DC: Author.