Order Code RS22350
Updated January 29, 2008
Railroad Retirement Board: Retirement,
Survivor, Disability, Unemployment, and
Sickness Benefits
Kathleen Romig
Social Science Analyst
Domestic Social Policy DivisionAlison M. Shelton
Analyst in Income Security
January 10, 2011
The House Ways and Means Committee is making available this version of this Congressional Research Service
(CRS) report, with the cover date shown above, for inclusion in its 2011 Green Book website. CRS works
exclusively for the United States Congress, providing policy and legal analysis to Committees and Members of
both the House and Senate, regardless of party affiliation.
Congressional Research Service
RS22350
CRS Report for Congress
Prepared for Members and Committees of Congress
Railroad Retirement Board: Benefits
Summary
The Railroad Retirement Board (RRB) administers retirement, survivor, disability,
unemployment, and sickness insurance for railroad workers and their families. This
report describes RRB report
describes Railroad Retirement Act (RRA) and Railroad Unemployment Insurance Act (RUIA)
eligibility requirements, benefit types and compensation amounts,
and program financing. The report will be updated annually.
The Railroad Retirement Board (RRB), an independent federal agency, administers
retirement, survivor, disability, unemployment, and sickness insurance for railroad
workers and their families. Workers covered by RRB include those employed by
railroads engaged in interstate commerce and related subsidiaries, railroad associations,
and railroad labor organizations.1 In FY2006, RRB paid about $9.4 billion in retirement,
survivor, and disability benefits to about 619,000 beneficiaries and $73 million in
unemployment and sickness benefits to 28,000 beneficiaries.2 Lifelong railroad workers
receive RRB benefits instead of Social Security benefits; railroad workers with nonrailroad experience receive benefits from either RRB or from Social Security, depending
on the length of their railroad service.
RRB is separate from the Social Security system, but the two programs are closely
coordinated. The first legislation to establish a federal retirement program for railroad
workers passed shortly before the Social Security Act of 1935.3 The funding of RRB and
Social Security was first linked in 1951, when a financial interchange was established.
1
RRB is governed by three board members: one recommended by railroad employers, one
recommended by railroad labor organizations, and one appointed to represent the public interest.
2
Railroad Retirement Board, 2007 Annual Report for Fiscal Year Ended September 30, 2006,
at [http://www.rrb.gov/pdf/opa/AnnualRprt/AnnualReport.pdf]. (Hereafter, RRB Annual Report.)
3
RRB was created to stabilize the railroads when their finances were troubled. (See Ways and
Means Committee, 2004 Green Book, at [http://www.gpoaccess.gov/wmprints/green/2004.html].)
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This annual exchange of funds places the Social Security Trust Funds in the same
financial position they would have been in if railroad service had been covered by Social
Security. The two programs’ benefits are also coordinated. In 1974, railroad retirement
benefits were divided into two tiers (discussed below). Tier I benefits are computed using
the Social Security benefit formula based on earnings covered by either program. Tier II
benefits are similar to private pension benefits and are based only on railroad work.
This report provides general information on railroad benefits. Certain exceptions
and special cases are not covered. Individual railroad workers and beneficiaries should
contact RRB for more specific information on their benefits.4
Railroad Retirement, Survivor, and Disability Benefits
The Railroad Retirement Act (45 U.S.C. § 231) authorizes retirement, survivor, and
disability benefits for railroad workers and their families. To be insured for RRB
benefits, a worker must generally have at least 10 years of covered railroad work, or five
years performed after 1995. The family of an insured railroad worker receives RRB
benefits equal to or greater than the Social Security benefits they would have received if
the worker’s railroad work had been covered by Social Security. If a worker does not
qualify for RRB benefits, his or her railroad work counts toward Social Security benefits.
Retirement Benefits for Railroad Workers. At age 60, railroad workers with
at least 30 years of covered railroad work may receive full retirement annuities. At full
retirement age, which is gradually increasing from 65 to 67, insured workers with fewer
than 30 years of service may also receive full retirement annuities.5 These workers may
receive reduced retirement annuities starting at age 62. Retirement annuities are not
payable to workers who continue to work in a covered railroad job or who return to
railroad work after retirement. At the end of FY2007, about one-third of RRB
beneficiaries (193,000) received age-based annuities. The average retirement annuity was
about $1,880 per month, including both tier I and tier II benefits (described below).6
Tier I Annuities. Tier I benefits are equivalent to Social Security benefits. Tier
I benefits are calculated using the Social Security benefit formula with the RRB age and
service requirements, and are based on both RRB- and Social Security-covered
employment. After tier I benefits are first paid, they increase annually with a cost of
living adjustment (COLA) in the same manner as Social Security benefits.7
Tier I benefits may be reduced for retirees who receive Social Security benefits or
government pensions, retire early, or continue to work after retirement. Generally, Social
Security benefits are subtracted from tier I benefits, since work covered by Social Security
4
To find the nearest RRB office, see [http://www.rrb.gov/field/field.asp] or call 1-800-808-0772.
5
Full retirement age is rising from 65 for those born before 1938 to 67 for those born after 1959.
6
Railroad Retirement Board, Bureau of the Actuary, Quarterly Benefit Statistics, December
2007, at [http://www.rrb.gov/pdf/act/stat_qbs907.pdf]. All FY2007 benefit figures are in this
document.
7
For more on Social Security’s benefit formula and COLA, see CRS Report 94-27, Social
Security: Brief Facts and Statistics, by Gary Sidor.
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is counted towards tier I benefits. (Beneficiaries insured by both systems receive a single
check from the RRB.) Railroad retirement benefits may also be reduced for certain
pensions earned through federal, state, and local government work. Tier I benefit
reductions for early retirement are similar to those in the Social Security system. As the
full retirement age rises, so will the reduction for early retirement.8 For early retirees who
continue to work outside the railroad industry, tier I benefits are reduced by $1 for every
$2 earned above the exempt amount ($13,560 in 2008).9 The reductions for earnings do
not apply if a railroad retiree’s annuity is reduced due to Social Security benefit receipt.
Tier II Annuities. Tier II retirement annuities are paid in addition to tier I annuities
and any private pension and retirement savings plans offered by railroad employers.10
They are similar to private pensions and based solely on covered railroad service. Tier
II benefits are increased annually by 32.5% of the Social Security COLA.
Tier II benefits are not reduced if a worker receives Social Security benefits or a
government pension. Generally, the early retirement reductions for tier II benefits are the
same as for tier I benefits. The reductions for earnings are different. For railroad retirees
who continue to work at the non-railroad job they held at the time they retired, tier II
benefits are reduced by $1 for every $2 earned, up to 50% of the benefit. The benefit
reduction for earnings applies to all tier II beneficiaries, regardless of age.
Other Retired Worker Benefits. Railroad employers finance a supplemental
annuity program. Supplemental annuities are payable to employees hired before October
1981, with at least 25 years of covered railroad service and a current connection to the
railroad industry.11 At the end of FY2007, about 121,000 railroad retirees received
supplemental annuities, which averaged $42 a month. In addition, general revenues
finance a windfall benefit to vested dual beneficiaries. Vested dual beneficiaries were
insured for both RRB and Social Security in 1974 when the two-tier benefit structure was
established. In FY2006, about 44,200 retirees received vested dual benefits, averaging
$160 per month.12 Neither supplemental annuities nor vested dual benefits are adjusted
for the cost of living. Supplemental annuities are subject to the same earnings reductions
as tier II benefits; vested dual benefits are subject to the same earnings reductions as tier
I benefits.
Retirement Benefits for Railroad Workers’ Families. In any month that a
worker collects a railroad retirement benefit, his or her spouse may also be eligible for a
8
The reduction at age 62, Social Security’s earliest eligibility age, is rising from 20% to 30%.
9
During the calendar year that a retiree will reach the full retirement age, the formula for
calculating the early retirement reduction changes: benefits are reduced $1 for every $3 earned
above the exempt amount ($36,120 in 2008) until the beneficiary reaches full retirement age.
10
Annual tier II benefits are 7/10% of a workers’ average taxable monthly compensation for the
highest 60 months of earnings times their years of service, less 25% of any vested dual benefit.
11
People have a current connection if they worked in a covered railroad job for at least 12 of the
30 months before death or receipt of a railroad annuity. The current connection is not broken
during employment at certain U.S. government agencies, or in other special circumstances.
12
RRB Annual Report.
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retirement benefit.13 A spouse qualifies for a retirement annuity when he or she reaches
the same minimum age required for the worker to collect a retirement annuity (i.e., either
age 60 or 62, depending on years of service). At any age, a spouse may be eligible for a
retirement annuity if he or she cares for the retired worker’s unmarried child under age
18 (or a child disabled before age 22). A qualifying spouse receives 50% of the worker’s
tier I benefit before reductions (or, if higher, a Social Security benefit based on his or her
own earnings). Spouses may also receive 45% of the worker’s tier II benefit before
reductions. At the end of FY2007, about a quarter of RRB beneficiaries (137,000)
received spouse annuities. The average spouse annuity was $712 per month.
For spouses, as for railroad workers, Social Security benefits are subtracted from tier
I benefits. The benefit reductions for government pensions and post-retirement earnings
are also the same for spouses and workers, but spouses are subject to reductions based on
workers’ earnings as well as on their own earnings. As for early retirement, spouses are
subject to different benefit reductions than are workers.14 Finally, spouses’ benefits are
reduced by the amount of any railroad benefits they earned based on their own work.
Retired workers may also receive benefits on behalf of their children, if the children
are unmarried and under the age of 18 (or 19 if still in high school). These benefits are
subject to certain maximums based on the total benefits paid to the worker’s family.
Survivor Benefits for Railroad Workers’ Families. Surviving spouses,
former spouses, children, and other dependents of railroad workers may be eligible to
receive survivor benefits after the worker’s death. These benefits are paid in addition to
any private life insurance offered by railroad employers. To be insured for survivor
benefits, a worker must have had a current connection to the railroad industry at the time
of death. Railroad survivor benefits are generally higher than comparable Social Security
benefits since families of railroad workers may be entitled to tier II benefits as well as tier
I benefits (which are equivalent to Social Security benefits). In cases where no monthly
survivor benefits are paid, a lump-sum payment may be made to certain survivors.
The widows and widowers of railroad workers may receive survivor benefits. At full
retirement age, a surviving spouse may be eligible for 100% of the worker’s tier I benefit
(or his or her own Social Security benefit, if higher). The widow(er) may also receive
50% to 100% of the worker’s tier II benefit. As early as age 60 (or age 50, if disabled),
widows and widowers may receive reduced survivor benefits.15 At any age, a widow(er)
caring for a deceased worker’s child under age 16 may receive a survivor benefit of 75%
of the worker’s tier I benefit, as well as 50% to 100% of the worker’s tier II benefit. At
the end of FY2007, about a quarter of RRB beneficiaries received aged widow(er)
benefits, which averaged $1,168 per month. Less than 1% of RRB beneficiaries (867)
received benefits for widowed mothers and fathers, which averaged $1,464 per month.
13
Divorced spouses of retired railroad workers may also be eligible for retirement annuities. A
divorced spouse may receive 50% of the worker’s tier I benefit before reductions, but no tier II
benefits. To qualify, the former spouse must have been married to the worker for at least 10
years and must not be remarried; both the worker and former spouse must be at least age 62.
14
15
For spouses, the reduction at age 62 is gradually rising from 25% to 35%.
For widow(er)s, the reduction at age 60 (Social Security’s earliest eligibility age for widowed
spouses) is rising from about 17% to 20%.
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Children of railroad workers may also receive survivor benefits. To qualify, a child
must be unmarried and under the age of 18 (or 19 if still in high school). Disabled adult
children may qualify if their disability began before age 22. Eligible children receive 75%
of the worker’s tier I benefit and 15% of the worker’s tier II benefit. At the end of
FY2007, about 2% of RRB beneficiaries (11,000) received children’s survivor benefits,
which averaged $850 per month. In addition, if the parents of a railroad worker were
dependent on the worker for at least half of their support, they may receive 82.5% of the
worker’s tier I benefit and 35% of the worker’s tier II benefit.
Survivor benefits are not payable to a current railroad employee, and survivor
benefits are reduced by any RRB benefit the survivor has earned through his or her own
railroad work. Survivors receive the same reductions as retired workers for Social
Security benefit receipt, government pension receipt, and earnings (unless they are
disabled). A family maximum applies to survivor benefits, usually applicable when three
or more survivors receive benefits on a worker’s record (not counting divorced spouses).
Disability Benefits for Railroad Workers. Railroad workers may be eligible
for benefits if they become disabled. The Railroad Retirement Board determines whether
a worker is disabled based on the medical evidence provided during the application
process. Railroad workers found to be totally and permanently disabled from all work
may be eligible for total disability annuities. Totally disabled workers may receive tier
I benefits after a five-month waiting period and tier II benefits at age 62. Occupational
disability annuities are also payable to workers found to be permanently disabled from
their regular railroad occupations, at least 60 years old with 10 years of service (or any age
with 20 years of service), and with a current connection to the railroad industry. At the
end of FY2007, about 15% of RRB beneficiaries (84,000) received disability benefits.
The average disability annuity paid to workers younger than the full retirement age was
about $2,200; the average paid to those above the full retirement age was about $1,700.
Disability annuities are not payable if a worker is currently employed in a covered
railroad job. Disability benefits are suspended for beneficiaries who earn more than $730
a month in 2008 before the full retirement age.16 After the full retirement age, the earnings
reductions for retired railroad workers apply. The tier I portion of disability benefits may
be reduced for the receipt of workers compensation or government disability benefits.
Financing of Benefits Under the Railroad Retirement Act. Payroll taxes
are a major funding source for railroad retirement, survivor, and disability benefits. RRB
payroll taxes are divided into two tiers. The tier I tax is the same as the Social Security
payroll tax: railroad employers and employees each pay 6.2% on earnings up to $102,000
in 2008. Tier I taxes are transferred to the Social Security trust funds in a financial
interchange, then used to pay tier I benefits. The tier II tax is set each year based on
RRB’s asset balances as well as benefit and administrative costs. The tier II tax is 12.1%
for employers and 3.9% for employees on earnings up to $75,900 in 2008. Tier II taxes
are used to finance tier II benefits, supplemental annuities, and a portion of tier I benefits.
16
P.L. 109-478, passed in 2006, increased the earnings limit for RRB disability beneficiaries
from $400 to $700 and indexed future disability earnings limits to the Average Wage Index.
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In addition to payroll taxes, which provided about 48% of RRB funding in FY2006,
railroad benefits are funded from several other sources.17 The financial interchange with
Social Security provided 36% of RRB funding in FY2006. Revenues not needed to pay
current benefits and administrative costs are held in the National Railroad Retirement
Investment Trust, which is invested in both government securities and private equities.
Transfers and interest from this fund provide another revenue source for railroad benefits,
and were about 10% of RRB’s funding in FY2006. Federal income taxes levied on RRB
benefits made up about 5% of funding. General fund transfers to pay the costs of phasing
out vested dual benefits amounted to about 1% of funding.
Railroad Unemployment and Sickness Benefits
Railroad workers may qualify for daily unemployment and sickness benefits under
the Railroad Unemployment Insurance Act (45 U.S.C. § 351-369). These benefits are
paid in addition to any paid leave or private insurance an employee may have. Eligibility
for RRB unemployment and sickness benefits is based on recent railroad service and
earnings. Each year, the benefit year begins on July 1. Eligibility is based on work in the
prior year, or the base year. To qualify, railroad workers must have a minimum amount
of creditable earnings in the base year ($3,200 in the 2008 base year), not counting
earnings above a monthly maximum ($1,653 in the 2008 base year). New railroad
workers must also have at least five months of covered railroad work in the base year. To
receive unemployment benefits, a worker must be willing and able to work. For sickness
benefits, a worker must be unable to work because of illness or injury. Workers may not
earn any money while receiving unemployment or sickness benefits.
Unemployment and sickness beneficiaries will receive $61 a day for benefit year
2008 (beginning in July 2008). Railroad workers only receive these benefits to the extent
that they are higher than other benefits they receive under the Railroad Retirement Act,
the Social Security Act, or certain other public programs, including workers
compensation. Unemployment and sickness beneficiaries may receive normal benefits
for up to 26 weeks in a benefit year, or until the benefits they receive equal their creditable
earnings in the base year (if sooner).18 Employees with at least 10 years of covered
railroad service may qualify for extended benefits for 13 weeks after they have exhausted
normal benefits. Workers who apply for unemployment benefits will be enrolled
automatically in a free job placement service run by railroad employers.
Financing of Benefits Under the Railroad Unemployment Insurance Act.
Railroad unemployment and sickness benefits are financed solely by railroad employers.
Employers’ contributions are based on the taxable earnings of their employees. The tax
rate depends on the past rates of unemployment and sickness claims by employees, and
ranges from 2.15% to 12.0%. Employers also pay a 1.5% surcharge to build up the
railroad unemployment insurance trust fund. Railroad unemployment funds not needed
immediately are deposited into an account that is part of the national unemployment
insurance trust fund; the railroad account receives interest based on these deposits.
17
18
RRB Annual Report.
There is essentially a one-week waiting period for unemployment and sickness benefits. There
is a two-week waiting period for unemployment benefits if a worker participates in a legal strike.This
report also covers railroad unemployment provisions in the 2009 stimulus package (the American
Recovery and Reinvestment Act, P.L. 111-5) and follow-on legislation concerning temporary
extended unemployment benefits for railroad workers. The report will be updated annually.
Congressional Research Service
Railroad Retirement Board: Benefits
Contents
Introduction ................................................................................................................................1
Railroad Retirement, Survivor, and Disability Benefits................................................................1
Retirement Benefits for Railroad Workers .............................................................................2
Tier I Retirement Annuities .............................................................................................2
Tier II Retirement Annuities ............................................................................................2
Other Retired Worker Benefits: Supplemental Annuities and Vested Dual Benefits ..........3
Retirement Benefits for Railroad Workers’ Families ..............................................................3
Survivor Benefits for Railroad Workers’ Families..................................................................4
Disability Benefits for Railroad Workers ...............................................................................5
Financing of Retirement Benefits Under the Railroad Retirement Act....................................6
Railroad Unemployment and Sickness Benefits...........................................................................6
Financing of Benefits Under the Railroad Unemployment Insurance Act ...............................7
Changes to RRA and RUIA Benefits in 2009...............................................................................7
American Recovery and Reinvestment Act of 2009 ...............................................................7
One-Time Payment for RRA Beneficiaries ......................................................................7
Temporary Federal Income Tax Exclusion of Railroad Unemployment Benefits ..............8
Temporary Extension of Extended Unemployment Benefits ............................................8
Worker, Homeownership, and Business Assistance Act of 2009.............................................8
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010............8
Congressional Research Service
Railroad Retirement Board: Benefits
Introduction
The Railroad Retirement Board (RRB), an independent federal agency, administers retirement,
survivor, disability, unemployment, and sickness insurance for railroad workers and their families
under the Railroad Retirement Act (RRA) and Railroad Unemployment Insurance Act (RUIA).
Workers covered by those acts include those employed by railroads engaged in interstate
commerce and related subsidiaries, railroad associations, and railroad labor organizations.1 In
FY2010, the RRB paid almost $10.8 billion in retirement and survivor benefits to about 582,000
beneficiaries. Unemployment and sickness benefits totaling $160 million, including over $20
million in temporary extended unemployment benefits, were paid to more than 38,000 claimants.2
Lifelong railroad workers receive railroad retirement benefits instead of Social Security benefits;
railroad workers with non-railroad experience receive benefits from either railroad retirement or
from Social Security, depending on the length of their railroad service.
Railroad retirement is separate from the Social Security system, but the two programs are closely
coordinated. The first legislation to establish a federal retirement program for railroad workers
passed shortly before the Social Security Act of 1935. The funding of railroad retirement and
Social Security was first linked in 1951, when a financial interchange was established. This
annual exchange of funds places the Social Security Trust Funds in the same financial position
they would have been in if railroad service had been covered by Social Security. The two
programs’ benefits are also coordinated. In 1974, railroad retirement benefits were divided into
two tiers (discussed below). Tier I benefits are computed using the Social Security benefit
formula based on earnings covered by either program. Tier II benefits are similar to private
pension benefits and are based only on railroad work.
This report provides general information on railroad benefits. Certain exceptions and special
cases are not covered. Individual railroad workers and beneficiaries should contact the RRB for
more specific information on their benefits.3
Railroad Retirement, Survivor, and Disability
Benefits
The Railroad Retirement Act (45 U.S.C. § 231) authorizes retirement, survivor, and disability
benefits for railroad workers and their families. To be insured for RRA benefits, a worker must
generally have at least 10 years of covered railroad work, or five years performed after 1995. The
family of an insured railroad worker may be entitled to receive railroad retirement benefits. If a
worker does not qualify for railroad retirement benefits, his or her railroad work counts toward
Social Security benefits.
1
RRB is governed by three board members: one recommended by railroad employers, one recommended by railroad
labor organizations, and one appointed to represent the public interest.
2
Railroad Retirement Board, An Agency Overview, January 2011, available at http://www.rrb.gov/opa/
agency_overview.asp.
3
To find the nearest RRB office, see http://www.rrb.gov/field/field.asp or call 1-877-772-5772.
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Railroad Retirement Board: Benefits
Retirement Benefits for Railroad Workers
At the age of 60, railroad workers with at least 30 years of covered railroad work may receive
unreduced retirement annuities. At full retirement age, which is gradually increasing from 65 to
67, insured workers with fewer than 30 years of service may also receive full retirement
annuities. 4 Workers with fewer than 30 years of service may receive reduced retirement annuities
starting at the age of 62. Retirement annuities are not payable to workers who continue to work in
a covered railroad job or who return to railroad work after retirement. At the end of FY2010,
about one-third of railroad retirement beneficiaries (190,236) received age-based annuities. The
average age-based retirement annuity was about $2,186 per month, including tier I, tier II, and
vested dual benefits (described below).5
Tier I Retirement Annuities
Tier I benefits are designed to be equivalent to Social Security benefits. Tier I benefits are
calculated using the Social Security benefit formula with the railroad retirement age and service
requirements, and are based on both railroad retirement and Social Security-covered employment.
After tier I benefits are first paid, they increase annually with a cost of living adjustment (COLA)
in the same manner as Social Security benefits.6
Tier I benefits may be reduced for retirees who receive Social Security benefits or government
pensions, retire early, or continue to work after retirement. Generally, Social Security benefits are
subtracted from tier I benefits, since work covered by Social Security is counted towards tier I
benefits. (Beneficiaries insured by both systems receive a single check from the RRB.) Railroad
retirement benefits may also be reduced for certain pensions earned through federal, state, and
local government work. Tier I benefit reductions for early retirement are similar to those in the
Social Security system. As the full retirement age rises, so will the reduction for early retirement.7
For early retirees who continue to work outside the railroad industry, tier I benefits are reduced by
$1 for every $2 earned above an exempt amount ($14,160 in 2011).8 If a railroad retiree also
receives social security benefits, the retiree’s social security benefits are reduced if the retiree
earns more than the exempt amount, but the retiree’s tier I railroad retirement benefits are not
reduced because of earnings.
Tier II Retirement Annuities
Tier II retirement annuities are paid in addition to tier I annuities and any private pension and
retirement savings plans offered by railroad employers.9 They are similar to private pensions and
4
Full retirement age is rising from 65 for those born before 1938 to 67 for those born after 1959.
Railroad Retirement Board, Bureau of the Actuary, Quarterly Benefit Statistics, July-September 2010, December 21,
2010, at http://www.rrb.gov/pdf/act/stat_qbs910.pdf.
6
For more on Social Security’s benefit formula and COLA, see CRS Report 94-27, Social Security: Brief Facts and
Statistics, by Gary Sidor.
7
The reduction at the age of 62, Social Security’s earliest eligibility age, is rising from 20% to 30% as the normal
retirement age rises from age 65 to age 67.
8
During the calendar year that a retiree will reach the full retirement age, the formula for calculating the early
retirement reduction changes: benefits are reduced $1 for every $3 earned above the exempt amount ($37,680 in 2011)
until the beneficiary reaches full retirement age.
9
Annual tier II benefits are 7/10% of a worker’s average taxable monthly compensation for the highest 60 months of
(continued...)
5
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Railroad Retirement Board: Benefits
based solely on covered railroad service. Tier II benefits are increased annually by 32.5% of the
Social Security COLA.
Tier II benefits are not reduced if a worker receives Social Security benefits or a government
pension. Generally, the early retirement reductions for tier II benefits are the same as for tier I
benefits. The reductions for earnings are different. For railroad retirees who continue to work at
the non-railroad job they held at the time they retired, tier II benefits are reduced by $1 for every
$2 earned, up to 50% of the benefit. The benefit reduction for earnings applies to all tier II
beneficiaries, regardless of age.
Other Retired Worker Benefits: Supplemental Annuities and Vested Dual
Benefits
Tier II payroll taxes also finance a supplemental annuity program. Supplemental annuities are
payable to employees hired before October 1981, with at least 25 years of covered railroad
service and a current connection with the railroad industry.10 At the end of FY2010, about
121,166 retired railroad employees received supplemental annuities which averaged $42 a
month. 11
In addition, general revenues finance a vested dual benefit for those who were insured for both
railroad retirement and Social Security in 1974 when the two-tier benefit structure was
established. Neither supplemental annuities nor vested dual benefits are adjusted for the cost of
living. Supplemental annuities are subject to the same earnings reductions as tier II benefits;
vested dual benefits are subject to the same earnings reductions as tier I benefits.
Retirement Benefits for Railroad Workers’ Families
In any month that a worker collects a railroad retirement benefit, his or her spouse may also be
eligible for a retirement benefit equal to or greater than the benefits he or she would have
received if the worker’s railroad work had been covered by Social Security. 12 A spouse qualifies
for a retirement annuity when he or she reaches the same minimum age required for the worker to
collect a retirement annuity (i.e., either at the age of 60 or 62, depending on years of service). At
any age, a spouse may be eligible for a retirement annuity if he or she cares for the retired
worker’s unmarried child under the age of 18 (or a child disabled before the age of 22). A
qualifying spouse receives 50% of the worker’s tier I benefit before reductions (or, if higher, a
Social Security benefit based on his or her own earnings). Spouses may also receive 45% of the
worker’s tier II benefit before reductions. At the end of FY2010, about a quarter of railroad
(...continued)
earnings times the individual’s years of service, less 25% of any vested dual benefit.
10
People have a current connection if they worked in a covered railroad job for at least 12 of the 30 months before
death or receipt of a railroad annuity. The current connection is not broken during employment at certain U.S.
government agencies, or in other special circumstances.
11
Railroad Retirement Board, Bureau of the Actuary, Quarterly Benefit Statistics, July-September 2010, December 21,
2010, at http://www.rrb.gov/pdf/act/stat_qbs910.pdf.
12
Divorced spouses of retired railroad workers may also be eligible for retirement annuities. A divorced spouse may
receive 50% of the worker’s tier I benefit before reductions, but no tier II benefits. To qualify, the former spouse must
have been married to the worker for at least 10 years and must not be remarried; both the worker and former spouse
must be at least 62 years old.
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Railroad Retirement Board: Benefits
retirement beneficiaries (133,220) received spouse annuities. The average spouse annuity was
$826 per month. 13
For spouses, as for railroad workers, Social Security benefits are subtracted from tier I benefits.
The benefit reductions for government pensions and post-retirement earnings are also the same
for spouses and workers as under Social Security. Spouses are subject to reductions based on the
primary worker’s earnings as well as on their own earnings. As for early retirement, spouses are
subject to different benefit reductions than are workers.14 Finally, spouses’ benefits are reduced by
the amount of any railroad benefits they earned based on their own work.
Retired workers may also receive benefits on behalf of their children, if the children are
unmarried and under the age of 18 (or 19 if still in high school). These benefits are subject to
certain maximums based on the total benefits paid to the worker’s family.
Survivor Benefits for Railroad Workers’ Families
Surviving spouses, former spouses, children, and other dependents of railroad workers may be
eligible to receive survivor benefits after the worker’s death. These benefits are paid in addition to
any private life insurance offered by railroad employers. To be insured for survivor benefits, a
worker must have had a current connection15 with the railroad industry at the time of death.
Railroad survivor benefits are generally higher than comparable Social Security benefits because
families of railroad workers may be entitled to tier II benefits as well as tier I benefits (which are
equivalent to Social Security benefits). In cases where no monthly survivor benefits are paid, a
lump-sum payment may be made to certain survivors.
The widows and widowers of railroad workers may receive survivor benefits. At full retirement
age, a surviving spouse may be eligible for 100% of the worker’s tier I benefit (or his or her own
Social Security benefit, if higher). The widow(er) may also receive up to 100% of the worker’s
tier II benefit. As early as the age of 60 (or age 50, if disabled), widows and widowers may
receive reduced survivor benefits.16 At any age, a widow(er) caring for a deceased worker’s child
under the age of 18 may receive a survivor benefit of 75% of the worker’s tier I benefit, as well as
up to 100% of the worker’s tier II benefit. At the end of FY2010, about 21% of railroad
retirement beneficiaries (114,929) received aged widow(er) benefits, which averaged $1,329 per
month. Less than 1% of railroad retirement beneficiaries (776) received benefits as widowed
mothers and fathers; these averaged $1,643 per month.17
Children of railroad workers may also receive survivor benefits. To qualify, a child must be
unmarried and under the age of 18 (or 19 if still in high school). Disabled adult children may
13
Railroad Retirement Board, Bureau of the Actuary, Quarterly Benefit Statistics, July-September 2010, December 21,
2010, at http://www.rrb.gov/pdf/act/stat_qbs910.pdf.
14
For spouses, the reduction at the age of 62 is gradually rising from 25% to 35%.
15
People have a current connection if they worked in a covered railroad job for at least 12 of the 30 months before
death or receipt of a railroad annuity. The current connection is not broken during employment at certain U.S.
government agencies, or in other special circumstances.
16
For widow(er)s, the reduction at the age of 60 (Social Security’s earliest eligibility age for widowed spouses) is
rising from 17.10% to 20.36%.
17
Railroad Retirement Board, Bureau of the Actuary, Quarterly Benefit Statistics, July-September 2010, December 21,
2010, at http://www.rrb.gov/pdf/act/stat_qbs910.pdf.
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qualify if their disability began before the age of 22. Eligible children receive 75% of the
worker’s tier I benefit and 15% of the worker’s tier II benefit. At the end of FY2010, about 2% of
railroad retirement beneficiaries (10,168) received children’s survivor benefits, which averaged
$937 per month. 18 In addition, if a parent of a railroad worker was dependent on the worker for at
least half of the parent’s support, he or she may receive 82.5% of the worker’s tier I benefit and
35% of the worker’s tier II benefit.
Survivor benefits are not payable to a current railroad employee, and survivor benefits are
reduced by any railroad retirement benefit the survivor has earned through his or her own railroad
work. Survivors receive the same reductions as retired workers for Social Security benefit receipt;
they also have reductions for government pension receipt and earnings. A family maximum
applies to survivor benefits, usually applicable when three or more survivors receive benefits on a
worker’s record (not counting divorced spouses).
Disability Benefits for Railroad Workers
Railroad workers may be eligible for benefits if they become disabled. The Railroad Retirement
Board determines whether a worker is disabled based on the medical evidence provided during
the application process. Railroad workers found to be totally and permanently disabled from all
work may be eligible for total disability annuities. Totally disabled workers may receive tier I
benefits after a five-month waiting period and tier II benefits at the age of 62 or at retirement if
they have 10 or more years of service. Occupational disability annuities are also payable to
workers found to be permanently disabled from their regular railroad occupations, at least 60
years old with 10 years of service (or any age with 20 years of service), and with a current
connection to the railroad industry. In 2008, the RRB reported that it approved nearly 98% of the
occupational disability applications it received. 19
At the end of FY2009, about 15% of railroad retirement beneficiaries (83,517) received disability
benefits. The average disability annuity paid to workers younger than the full retirement age was
$2,419; the average paid to those at or above the full retirement age was $1,954.20
Disability annuities are not payable if a worker is currently employed in a covered railroad job.
Disability benefits are suspended for beneficiaries who earn more than $780 a month in 2011
before the full retirement age. 21 After the full retirement age, the earnings reductions for retired
railroad workers apply. The tier I portion of disability benefits may be reduced for the receipt of
workers compensation or government disability benefits.
18
Railroad Retirement Board, Bureau of the Actuary, Quarterly Benefit Statistics, July-September 2010, December 21,
2010, at http://www.rrb.gov/pdf/act/stat_qbs910.pdf.
19
Railroad Retirement Board, Semiannual Report to the Congress, October 31, 2008, http://www.rrb.gov/pdf/oig/
SEMIRPTS/semi908.pdf.
20
Railroad Retirement Board, Bureau of the Actuary, Quarterly Benefit Statistics, July-September 2010, December 21,
2010, at http://www.rrb.gov/pdf/act/stat_qbs910.pdf.
21
P.L. 109-478, passed in 2006, increased the earnings limit for railroad retirement disability beneficiaries from $400
to $700 and indexed future disability earnings limits to the Average Wage Index.
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Financing of Retirement Benefits Under the Railroad
Retirement Act
Payroll taxes are a major funding source for railroad retirement, survivor, and disability benefits.
Railroad retirement payroll taxes are divided into two tiers. The tier I tax is the same as the Social
Security payroll tax: railroad employers and employees each pay 6.2% on earnings up to
$106,800 in 2011. Tier I taxes are transferred to the Social Security trust funds in a financial
interchange, then used to pay tier I benefits. The tier II tax is set each year based on the railroad
retirement system’s asset balances as well as benefit and administrative costs. The tier II tax is
12.1% for employers and 3.9% for employees on earnings up to $79,200 in 2011.22 Tier II taxes
are used to finance tier II benefits, supplemental annuities, and a portion of tier I benefits. Payroll
taxes provided about 44% of RRA funding in FY2009. 23
Railroad benefits are also funded from several other sources. The financial interchange with
Social Security provided 37% of RRA funding in FY2009. Revenues not needed to pay current
benefits and administrative costs are held in the National Railroad Retirement Investment Trust,
which is invested in both government securities and private equities. Transfers and interest from
this fund provide another revenue source for railroad benefits, and were about 15% of RRA
funding in FY2009. Federal income taxes levied on railroad retirement benefits made up about
3% of funding. General fund transfers to pay the costs of phasing out vested dual benefits
amounted to about 2% of funding.
Prior to the Railroad Retirement and Survivors’ Improvement Act of 2001 (P.L. 107-90), surplus
railroad retirement assets could only be invested in U.S. government securities—just as the Social
Security trust funds must be invested in specially issued U.S. government securities. The 2001 act
established the National Railroad Retirement Investment Trust to manage and invest part of the
RRB’s assets in the same way that the assets of private-sector and most state and local
government pension plans are invested. The remainder of the railroad retirement system’s assets
continue to be invested solely in U.S. government securities. The trust is designed to maintain
four to six years’ worth of benefits in case of lower-than-expected returns. To maintain this
balance, the tier II tax is set to automatically adjust to maintain the fund balance at four to six
years. This tax adjustment would not require congressional action. No tax increase is scheduled at
the time of this writing.
Railroad Unemployment and Sickness Benefits
Railroad workers may qualify for daily unemployment and sickness benefits under the Railroad
Unemployment Insurance Act (45 U.S.C. § 351-369). These benefits are paid in addition to any
paid leave or private insurance an employee may have. For sickness benefits, a worker must be
unable to work because of illness or injury. Sickness benefits are distinct from disability benefits
because they are intended to cover a finite, temporary period of time. Workers may not earn any
money while receiving unemployment or sickness benefits.
22
23
Railroad Retirement Board, Reminders for 2011, http://www.rrb.gov/forms/g34.asp.
U.S. Railroad Retirement Board, 2010 RRB Annual Report, http://www.rrb.gov/pdf/opa/annualrprt/annualreport.pdf.
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Eligibility for railroad unemployment and sickness benefits is based on recent railroad service
and earnings. Each year, the benefit year begins on July 1. Eligibility is based on work in the prior
year, or the base year. To qualify, railroad workers must have a minimum amount of creditable
earnings in the base year ($3,325 in the 2010 base year), not counting earnings above a monthly
maximum ($1,330 in the 2010 base year).24 New railroad workers must also have at least five
months of covered railroad work in the base year. To receive unemployment benefits, a worker
must be ready, willing and able to work.
Unemployment and sickness beneficiaries receive a maximum of $66 a day for benefit year 2010
(the year-long period from July 2010 to July 2011).25 Railroad workers only receive these benefits
to the extent that they are higher than other benefits they receive under the Railroad Retirement
Act, the Social Security Act, or certain other public programs, including workers compensation.
Unemployment and sickness beneficiaries may receive normal benefits for up to 26 weeks in a
benefit year, or until the benefits they receive equal their creditable earnings in the base year (if
sooner).26 Employees with at least 10 years of covered railroad service may qualify for extended
benefits for 13 weeks after they have exhausted normal benefits. The 2009 stimulus package
included an additional, temporary, extension of extended railroad unemployment benefits (see
below for more details). Workers who apply for unemployment benefits will be enrolled
automatically in a free job placement service run by railroad employers and the RRB.
Financing of Benefits Under the Railroad Unemployment
Insurance Act
Railroad unemployment and sickness benefits are financed solely by railroad employers.
Employers’ contributions are based on the taxable earnings of their employees. The employer’s
tax rate depends on the past rates of unemployment and sickness claims by employees. For
calendar year 2011 the rate ranges from 3.15% to 12.0% on the first $1,330 in paid to each
employee per month. Railroad unemployment funds not needed immediately are deposited into
an account that is part of the national unemployment insurance trust fund and the railroad account
receives interest based on these deposits.
Changes to RRA and RUIA Benefits in 2009
American Recovery and Reinvestment Act of 2009
One-Time Payment for RRA Beneficiaries
The 2009 stimulus package (the American Recovery and Reinvestment Act of 2009, P.L. 111-5,
“ARRA”) provided a one-time economic recovery payment of $250 to all adult railroad
24
Railroad Retirement Board, Reminders for 2011, http://www.rrb.gov/forms/g34.asp.
25
Railroad unemployment benefits are paid biweekly. A full biweekly claim is $660 (in each two-week period,
unemployed workers are compensated for 10 days of unemployment).
26
There is essentially a one-week waiting period for unemployment and sickness benefits. There is a two-week waiting
period for unemployment benefits if a worker participates in a legal strike.
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retirement beneficiaries within 120 days after enactment of the act (February 17, 2009).27 The act
appropriated such funds as were necessary to make the payments as well as $1.4 million for the
RRB to administer the one-time payments.
Temporary Federal Income Tax Exclusion of Railroad Unemployment Benefits
Railroad unemployment benefits are subject to federal income taxes, as are unemployment
benefits paid under state government programs. The Railroad Unemployment Insurance Act
specifically provides that railroad unemployment and sickness benefits are not subject to state
income taxes.
ARRA stipulates that individuals who receive Railroad Unemployment Insurance (RUIA)
benefits may exclude from gross income up to $2,400 in benefits received in 2009. The exclusion
is applicable for taxable years beginning after December 31, 2008.
Temporary Extension of Extended Unemployment Benefits
ARRA also temporarily increased the duration of extended unemployment benefits for railroad
workers. Railroad workers who previously were not eligible for extended unemployment benefits
because they did not have 10 years of service may be eligible for benefits of up to 65 days within
an extended period consisting of seven consecutive two-week registration periods. Railroad
workers who previously were eligible for extended unemployment benefits of up to 65 days
(because they had 10 years of service) may now be eligible for benefits of up to 130 days within
an extended period consisting of 13 consecutive two-week registration periods.
The provision applied to railroad employees who received normal unemployment benefits during
the benefit year beginning July 1, 2008, and ending June 30, 2009. No extended benefits under
the act could begin after December 31, 2009.
Worker, Homeownership, and Business Assistance Act of 2009
On November 6, 2009, the President signed P.L. 111-92, the Worker, Homeownership, and
Business Assistance Act of 2009, into law. Section 9 extended the ARRA provisions by one year
to June 30, 2010. The special extended unemployment benefit periods could begin no later than
December 31, 2010.
Tax Relief, Unemployment Insurance Reauthorization, and Job
Creation Act of 2010
On December 17, 2010, the President signed P.L. 111-312 into law. Section 505 extended the
ARRA provisions by one year to June 30, 2011. The special extended unemployment benefit
periods could begin no later than December 31, 2011.
27
For more details, see CRS Report R40188, Social Security Provisions in the American Recovery and Reinvestment
Act of 2009: Supplemental Appropriations, Economic Recovery Payments, and Tax Credits for Certain Government
Retirees, by Scott Szymendera.
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