Prepared by Public Affairs 312-751-4777
The Railroad Retirement Board (RRB) is required by law to submit
annual reports to Congress on the financial condition of the railroad retirement
system and the railroad unemployment insurance system. These reports must also
include recommendations for any financing changes which may be advisable in
order to ensure the solvency of the systems. In June, the RRB submitted its 2008
reports on the railroad retirement and unemployment insurance systems.
The following questions and answers summarize the findings of these reports.
1. What were the assets of the railroad
retirement and railroad unemployment insurance systems last year?
As of September 30, 2007, total railroad retirement system assets, comprising
assets managed by the National
Railroad Retirement Investment Trust and the railroad retirement system accounts at the U.S. Treasury,
equaled $34.0 billion. The Trust was established by the Railroad Retirement and
Survivors’ Improvement Act of 2001 to manage and invest railroad retirement
assets. The cash balance of the railroad unemployment insurance system was
$114.3 million at the end of fiscal year 2007.
2. What was the overall finding of the 2008
report on the financial condition of the railroad retirement system?
The 2008 report, which addressed railroad retirement financing during the next
25 years, was generally favorable, concluding that, barring a sudden,
unanticipated, large decrease in railroad employment or substantial investment
losses, the railroad retirement system will experience no cash-flow problems
during the next 25 years. However, the 2008 report also indicated that the
long-term stability of the system is still questionable. Under its current
financing structure, actual levels of railroad employment and investment return
over the coming years will largely determine whether corrective action is
necessary.
3. What methods were used in forecasting the
financial condition of the railroad retirement system?
The 2008 report projected the various components of income and outgo of the
railroad retirement system under three employment assumptions for the 25
calendar years 2008-2032. The projections of these components were combined and
the investment income calculated to produce the projected balances in the
accounts at the end of each projection year.
Projecting income and outgo under optimistic, moderate and pessimistic
employment assumptions, the 2008 report indicated no cash-flow problems occur
throughout the 25-year projection period under any of these assumptions.
4. How do the results of the 2008 report
compare with those of the 2007 report?
Both employment and investment return exceeded expectations in calendar year
2007. The results are similar to last year with an improvement shown under each
employment assumption. Notably, projected tax rates are no higher in any
calendar year and are one percent lower in at least three calendar years under
each employment assumption.
5. Did the 2008 report on the railroad
retirement system recommend any financing changes?
The report did not recommend any railroad retirement financing changes. The
payroll tax adjustment mechanism provided by the 2001 legislation will
automatically increase or decrease tax rates in response to changes in fund
balance. Even under a pessimistic employment assumption, this mechanism is
expected to prevent cash-flow problems for the duration of the 25-year
projection period.
6. What were the findings of the 2008 report
on the financial condition of the railroad unemployment insurance system?
The RRB’s 2008 railroad unemployment insurance financial report was also
generally favorable. Even as maximum benefit rates increase 47 percent (from $59
to $87) from 2007 to 2018, experience-based contribution rates are expected to
keep the unemployment insurance system solvent. No new loans are anticipated
even under the most pessimistic assumption.
Unemployment levels are the single most significant factor affecting the
financial status of the railroad unemployment insurance system. The
experience-rating system is designed to tie individual employer contribution
rates to their level of benefit claims, thereby adjusting the overall account
balance to an appropriate level.
The report predicted that, even under the most pessimistic assumption, the
average employer contribution rate remains well below the maximum throughout the
projection period. The report also predicted that the 1.5 percent surcharge in
effect in calendar year 2008 will be followed by a 1.5 percent surcharge for
calendar years 2009-2010. A 1.5 percent surcharge is also likely for calendar
year 2011.
7. What methods were used to evaluate the
financial condition of the railroad unemployment insurance system?
The economic and employment assumptions used in the unemployment insurance
report corresponded to those used in the report on the retirement system.
Projections were made for various components of income and outgo under each of
three employment assumptions, but for the 11 fiscal years 2008-2018, rather than
a 25-year period.
8. Did the 2008 report on the railroad
unemployment insurance system recommend any financing changes to the system?
No financing changes were recommended at this time.
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The Railroad
Retirement Board's 2008 financial reports on the retirement and
unemployment insurance systems are available in their entirety on the
agency's Web site at www.rrb.gov. Information on the National Railroad
Retirement Investment Trust, including its quarterly and annual reports,
is also available on the site. |
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