The railroad unemployment insurance system, like the railroad retirement system,
was established in the 1930’s. The Great Depression demonstrated the need for
unemployment compensation programs, and State unemployment programs had been
established under the Social Security Act in 1935. While the State unemployment
programs generally covered railroad workers, railroad operations which crossed
State lines caused special problems. Unemployed railroad workers were denied
compensation by one State because they became unemployed while working in
another State or because their employers had paid unemployment taxes in another
State. Although there were cases where employees appeared to be covered in more
than one State, they often did not qualify in any.
Railroad Unemployment Insurance Act of 1938
A Federal study commission, which reported on the nationwide State plans for
unemployment insurance, recommended that railroad workers be covered by a
separate plan because of the complications their coverage had caused the State
plans. Congress subsequently enacted the Railroad Unemployment Insurance Act in
June 1938. The Act established a system of benefits for unemployed railroaders,
financed entirely by railroad employers and administered by the Board. Sickness
benefits were added in 1946.
The Act of 1938 established a system of benefits for unemployed railroad
workers, plus a free placement service, to be financed by a payroll tax of 3
percent, payable entirely by employers. After some minor changes in the
following year, the law went into operation on July 1, 1939.
Benefits were payable to qualified railroad employees according to a scale of
daily rates geared to base-year earnings. Initially, the daily rates ranged from
$1.75 to $3 and were payable for a maximum of 80 days in each benefit year,
after an initial waiting period. In 1940, the maximum daily rate was raised to
$4 and the maximum duration to 100 days in 20 weeks; the waiting period was
reduced from 15 days to 7 days and a uniform benefit year was established.
Major Amendments to the Railroad
Unemployment Insurance Act
The first set of major amendments was enacted in 1946. The maximum duration
was increased to 26 weeks and the maximum daily benefit rate to $5. The most
important feature of these amendments was the program of cash sickness benefits
(including maternity benefits) for railroad workers, paralleling unemployment
benefits and financed from the same taxes. At that time, only two States, Rhode
Island and California, had sickness plans. Three additional States (New Jersey,
New York and Hawaii) and Puerto Rico later adopted similar plans.
As a result of the very low rate of unemployment and relatively high payrolls
during the war years, the balance in the Railroad Unemployment Insurance Account
mounted rapidly. Consequently, in 1948 the principle of a fixed contribution
rate was abandoned and a sliding scale of contribution rates substituted. The
rates were to range from 0.5 percent to 3 percent of taxable payroll, depending
on the current balance in the Railroad Unemployment Insurance Account.
1950’s.—Amendments enacted in 1952
and 1954 raised the maximum daily benefit rate to $7.50 and then to $8.50, the
base year earnings needed by an employee to qualify for benefits to $300 and
then to $400, and the taxable limit on monthly earnings from $300 to $350. The
amendments also provided that the benefit rate, subject to the maximum amount,
should not be less than half the claimant’s daily wage rate. In addition, normal
benefits for unemployment or sickness in a benefit year were each limited in
total to the employee’s creditable base year earnings.
Legislation in 1959 increased the maximum daily benefit rate to $10.20, raised
the benefit rate guaranty to 60 percent of the daily wage rate, and provided
extended unemployment benefits for 13 weeks to employees with at least 10 years
of service and 26 weeks of extended benefits to 15-year employees. These
amendments also raised the base year qualifying amounts from $400 to $500, and
the limit on creditable and taxable earnings from $350 to $400 a month. They
removed the waiting period for unemployment benefits and the Sunday and holiday
disqualification provision, and increased the maximum contribution rate to 3.75
percent. In addition, the Board received authority to borrow money from the
Railroad Retirement Account when necessary in order to pay benefits when due.
Such loans were to bear the same interest rate as was being earned by other
investments of the Railroad Retirement Account. After the borrowing authority
was first used in July 1959, additional sums were subsequently borrowed in
succeeding years as required. Payments on the debts to the Railroad Retirement
Account were made whenever excess unemployment funds were available.
1960’s.—Amendments enacted in 1963
were designed to improve the financing of the system. The maximum contribution
rate was increased to 4 percent, and the amount of base-year earnings needed by
an employee to qualify for benefits was raised from $500 to $750. Also, a
minimum base-year service requirement of 7 months was added for employees having
no previous railroad service, and the disqualification for quitting work
voluntarily without good cause was made more stringent. Following these
amendments, indebtedness to the Railroad Retirement Account gradually declined
from a then peak level of nearly $330 million and was liquidated in September
1973.
In 1968, legislation increased the maximum daily benefit rate to $12.70 and
provided extended benefits for sickness on essentially the same basis as for
unemployment, except that these extended sickness benefits could not be paid to
employees age 65 or older. These amendments also raised the base-year qualifying
amount to $1,000, eliminated the special maternity benefit provisions (benefits
were still payable for pregnancy and childbirth under the sickness benefit
provisions), and added a disqualification for employees who receive separation
allowances.
1970’s.—Amendments in 1975
increased the maximum daily benefit rate to $24 beginning on July 1, 1975, and
to $25 starting on July 1, 1976. The 60 percent daily benefit rate guaranty was
retained in the amended law up to the amount of the new daily maximum, and a new
daily minimum rate of $12.70 was established. The amendments liberalized the
basic eligibility requirements for new employees by lowering the 7-month
base-year service requirement to 5 months. In addition, the 1975 amendments
mandated a 7-day waiting period for benefit payments resulting from strikes. The
tax rate schedule was increased, starting in 1976, from a maximum of 4 percent
to a maximum of 8 percent, depending on the balance in the account, in order to
finance the increased benefits. This legislation also lowered the waiting period
for sickness benefits.
The 1975 legislation also provided extended unemployment benefit periods of up
to 13 weeks for employees with less than 10 years of service during “periods of
high unemployment.” Under the pre-existing law, extended benefits were payable
only to employees with 10 or more years of service. However, subsequent 1981
legislation repealing the “high unemployment” extended benefit provisions in the
State unemployment programs nullified the related railroad unemployment
insurance provisions, and the Board was required to cease awarding extended
benefits to employees with less than 10 years of service.
The Revenue Act of 1978 made unemployment benefits and sickness benefits paid in
lieu of unemployment benefits subject to Federal income tax.
1980’s.—Amendments enacted in 1981
subjected the first six months of sickness benefits to tier I railroad
retirement taxes, provided the benefits did not result from on-the-job injury.
Legislation enacted in March 1983 provided unemployed railroad workers with less
than 10 years of service, who exhausted normal railroad unemployment benefits,
up to 10 weeks of temporary supplemental extended unemployment benefits, but
these temporary benefits were financed from Federal general revenue funds.
After 1973, the Railroad Unemployment Insurance Account balance fluctuated into
and out of the red until the early 1980’s when the continuing recession in the
national economy depressed rail traffic levels to the extent that large-scale
layoffs were underway by early 1982. The layoffs increased unemployment benefit
payments to record levels which far exceeded unemployment tax income and
necessitated high levels of loans from the Railroad Retirement Account. The
Railroad Unemployment Insurance Account owed the Railroad Retirement Account a
peak amount of over $850 million at the end of fiscal year 1986. Financial
measures to assist the Railroad Unemployment Insurance Account were included in
the Railroad Retirement Solvency Act enacted August 12, 1983.
The Solvency Act raised the taxable limit on monthly earnings from $400 to $600
and the base-year qualifying amount from $1,000 to $1,500. The waiting period
for benefits during strikes was increased from 7 to 14 days. A temporary
repayment tax on railroad employers was scheduled to begin July 1, 1986, to
initiate repayment of the loans made by the Railroad Retirement Account.
Sickness benefits, other than those resulting from on-the-job injuries, were
made subject to Federal income tax.
The 1983 legislation also mandated the establishment of a Railroad Unemployment
Compensation Committee 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, in particular, 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 revised the
1983 law which had set a temporary unemployment insurance loan repayment tax
beginning July 1, 1986, at a 2 percent rate with increases of 0.3 percent a year
until 1990. The amended schedule required rates of 4.3 percent on wages up to
$3,500 beginning July 1986, 4.7 percent in calendar year 1987 on wages up to
$7,000, and 6 percent in 1988. This budget legislation also continued authority
for borrowing by the Railroad Unemployment Insurance Account from the Railroad
Retirement Account, but provided for an automatic unemployment insurance surtax
on rail employers of 3.5 percent on annual wages up to $7,000 if further
borrowing took place.
As a result of the Gramm/Rudman Act, unemployment and sickness benefits were
reduced in fiscal year 1986 and were reduced periodically in subsequent years.
The 1986 Tax Reform Act made all unemployment benefits subject to Federal income
tax, beginning with taxable year 1987.
1988
Legislation and Later Amendments
The Railroad Unemployment Insurance and Retirement Improvement Act, based on
the recommendations of the Railroad Unemployment Compensation Committee, was
included in the Technical and Miscellaneous Revenue Act of 1988, enacted
November 10, 1988. The legislation raised the unemployment and sickness daily
benefit rate from $25 to $30 retroactively to July 1988 and indexed benefit
rates and earnings requirements to national wage levels. The daily benefit rate
subsequently rose to $31 in July 1989, $33 in July 1992, and $36 in July 1994.
(Legislation enacted in 1996 raised the rate to $42 effective October 9, 1996,
$43 in July 1997, $44 in July 1998, $46 in July 1999, $48 in July 2000, $50 in
July 2001, $52 in July 2002, $55 in July 2003 and $56 in July 2004. It remained
$56 in July 2005 and will increase to $57 in July 2006 and $59 in July 2007.) A
2-week waiting period was established and employers were provided the right to
appeal claims of their employees after 1989. Also, the amount of subsidiary
remuneration from part-time work which unemployment benefit claimants can earn
without affecting their benefits was increased from $10 to $15 a day.
Under the indexing provisions of the 1988 amendments, the taxable earnings base
in calendar year 1989 increased from $600 to the first $710 of each employee’s
monthly earnings, and by 2006 to $1,195. For 1989 and 1990, the contribution
rate for most employers was set at 8 percent. Experience-based tax rates were
phased in during 1991, with rates ranging from 5.55 percent to 12 percent.
The 1988 amendments assured repayment of the unemployment system’s debt to the
retirement system by fixing the loan repayment tax at 4 percent in January 1989,
with that rate remaining in force until the debt was fully repaid with interest.
And the previous $7,000 annual base for this tax was changed to conform to the
indexed monthly taxable compensation base. In June 1993 the $180 million loan
balance was repaid in its entirety from cash reserves in the Railroad
Unemployment Insurance Account and the loan repayment tax was terminated.
A contingency surtax of 3.5 percent, effective in the event of further borrowing
by the Railroad Unemployment Insurance Account, was eliminated in 1991. Instead,
a surcharge can 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 1988 amendments also
require the Board to make annual financial reports to Congress on the status of
the unemployment insurance system. The reports have been favorable.
The Omnibus Budget Reconciliation Act of 1989 revised Federal indexing
procedures, which raised the maximum on monthly compensation subject to railroad
unemployment insurance taxes and the qualifying earnings requirement. This
legislation also revised fiscal year 1990 unemployment and sickness benefit
sequestrations under the Gramm/Rudman Act.
1990’s.—Under 1991, 1992 and 1993
emergency unemployment compensation legislation providing temporary extended
State unemployment benefits, unemployed railroad workers were made eligible for
extended benefits, on a temporary basis, regardless of years of service. These
temporary extended benefits were made available for specified periods in 1991,
1992, 1993 and 1994 if previous benefit rights were exhausted by certain dates.
Railroad Unemployment Insurance Amendments
Act of 1996
The Railroad Unemployment Insurance Amendments Act of 1996, signed into law
on October 9, 1996, increased the railroad unemployment and sickness insurance
daily benefit rate and revised the formula for indexing future benefit rates. It
also reduced the waiting period for initial benefit payments and eliminated
duplicate waiting periods in continuing periods of unemployment and sickness. In
addition, the Act applied an earnings test to claims for unemployment and
reduced the duration of extended benefit periods for long-service employees. The
Act’s provisions were based on joint recommendations to Congress negotiated by
rail labor and management in order to update the railroad unemployment insurance
system along the lines of State unemployment insurance systems. The following
provisions were effective upon the October 9, 1996, enactment date.
The maximum railroad unemployment and sickness insurance daily benefit rate
increased to $42 from $36. The formula for indexing future benefit rates was
modified so that rates increase more frequently, generally with the start of
each new benefit year in July. By July 2004, the rate had risen to $56; it
remained $56 in July 2005 and will increase to $57 in July 2006 and $59 in July
2007.
The Act eliminated the full 2-week waiting period and made benefits payable for
each day of unemployment or sickness in excess of 7 during an employee’s first
14-day registration period in a benefit year. It also eliminated a second
waiting period previously required when a new benefit year began during a
continuing period of unemployment or sickness.
An earnings test was made applicable to claims for intermittent unemployment. If
an employee’s earnings for days worked in a 14-day registration period are more
than a certain indexed amount, no benefits are payable for any days of
unemployment in that period.
The Act eliminated the second 13-week period of extended benefits for those with
15 or more years of service.
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