Prepared by Public Affairs 312-751-4777
President Bush signed the Railroad Retirement and Survivors'
Improvement Act of 2001 into law on December 21, 2001. The
legislation liberalizes early retirement benefits for 30-year employees,
eliminates a cap on monthly retirement and disability benefits, lowers the
minimum service requirement from 10 years to 5 years of service if performed
after 1995, and provides increased benefits for some widow(er)s. The financing
sections of the new law provide for the investment of railroad retirement funds
in non-governmental assets, adjustments in the payroll tax rates paid by
employers and employees, and the repeal of a supplemental annuity work-hour tax.
The following is a summary of the changes in railroad retirement benefits and
financing provided by the new law, which was based on joint recommendations to
Congress negotiated by a coalition of rail labor organizations and rail freight
carriers. Railroad Retirement
Benefit Provisions
60/30 retirement. The new law amends the Railroad Retirement Act by
eliminating the early retirement reduction applied to the annuities of 30-year
employees retiring between the ages of 60 and 62 if their annuities begin
January 1, 2002, or later. The spouses of such employees would also be eligible
for full annuities at age 60. Full 60/30 benefits have not been payable to
30-year employees retiring before age 62 since 1983 legislation reduced such
early retirement benefits. This provision is not retroactive and
not applicable to 30-year employees who retired on the basis of age and service
prior to January 1, 2002, or to their spouses, even if their spouses retire
after 2001. However, if a disability annuitant is age 60 and has 30 years'
service, his or her spouse can now receive an unreduced annuity as early as age
60 if the spouse's annuity beginning date is January 1, 2002, or later.
Maximum provision. The new law
eliminates, effective January 1, 2002, a maximum on the amount of combined
monthly employee and spouse benefit payments which had been intended to prevent
benefits from exceeding an employee's creditable earnings prior to retirement.
This maximum provision had the unintended effect of reducing benefits for former
employees with no earnings, or low earnings, in the 10-year period prior to
retirement, and for long-service employees with moderate earnings.
While not retroactive, the amendment will prospectively increase benefits,
effective January 1, 2002, for almost 2,600 employee and 12,000 spouse
annuitants on the Board's rolls whose benefits were reduced by the maximum
provision prior to 2002. In 2001, the average monthly employee
benefit reduction under the maximum provision was $164, and the average spouse
reduction was $78. The removal of any benefit reductions applied to affected
annuitants should be completed by June 2002. Such annuitants can expect to
receive accrual payments in late May 2002 retroactive to January, and increased
regular monthly payments reflecting their new rates beginning with the monthly
payment due on June 1, 2002. Notices are being sent by the Board to all affected
annuitants in January 2002 advising them accordingly. Notices
will also be sent in January to employees whose spouses may have been previously
advised by the Board to defer filing for spouse benefits because of the adverse
effects of the maximum provision, as their spouses would now want to consider
filing for railroad retirement benefits.
Basic service requirement. The new
law lowers the minimum eligibility requirement for regular railroad retirement
annuities from 10 years (120 months) of creditable railroad service to five
years (60 months) of creditable railroad service for those with five years of
service rendered after 1995. Benefits payable on the basis of this provision are
not retroactive and are not payable earlier than January 1, 2002.
Also, for those with less than 10 years of service, additional earnings credits
acquired under social security coverage would be required for a tier I benefit.
A tier II benefit would be payable even if the employee never worked under
social security coverage. Additional requirements apply in disability cases. In
addition, a deceased employee with five years' service after 1995 must still
have had a "current connection" with the rail industry in order for survivor
annuities to be payable by the Board under this provision, rather than the
Social Security Administration. Anyone with five years of service
performed after 1995, who was previously denied benefits because of the 10-year
service requirement, will want to contact a Board office.
Widow(er)s' benefits. The new law
establishes an "initial minimum amount" which is based on the two-tier annuity
amount that would have been payable to the railroad employee at the time the
widow(er)'s annuity is awarded. The initial minimum amount is computed with a
widow(er)'s tier II amount equal to 100 percent of the employee's tier II
amount. Under prior law, the widow(er)'s tier II amount was equal to 50 percent
of the employee's tier II amount; only the tier I amount equaled 100 percent.
Widow(er)s' annuities computed on the basis of the new initial minimum amount
will not be adjusted for annual cost-of-living increases until the annuity
amount is exceeded by the annuity amount the widow(er) would have been paid
under prior law, with all interim cost-of-living increases otherwise payable.
This provision is effective February 1, 2002, and is not payable retroactively.
The Railroad Retirement Board estimates that about 20 to 25 percent of the
widow(er)s on its rolls in 2001 will see some increase in their annuity.
This provision applies to widow(er)s on the rolls before the effective date only
if the annuity the widow(er) is currently receiving is less than she or he would
have received had the new law been in effect on the date the widow(er)'s annuity
began. Most widow(er)s' annuities awarded before October 1986 will not be
increased. Many of the widow(er)s' annuities currently being paid are already
higher than the annuity that would be payable under the new law because of
previous cost-of-living adjustments. Widow(er)s affected by this
change can expect to receive any accrual payments, retroactive to February, in
late April of 2002, and increased regular monthly payments reflecting their new
rates beginning with the payment they receive on May 1, 2002. Letters will be
sent in January to affected widow(er)s on the Board's rolls, advising them as to
whether they will receive an increase. As a result, widow(er)s do not need to
take any action or contact the Board.
Railroad Retirement Financing Provisions
Investment changes. The new law
provides for the transfer of railroad retirement funds from the Railroad
Retirement Accounts to a new National Railroad Retirement Investment Trust,
whose Board of seven trustees is empowered to invest Trust assets in
non-governmental assets, such as equities and debt, as well as in governmental
securities. The Trust will not be treated as an agency or
instrumentality of the Federal Government. Its Board of Trustees will be
comprised of seven members: three members selected by rail labor to represent
the interests of labor; three members likewise selected by rail management to
represent management interests; and one independent member selected by a
majority of the other six members. The new law also provides that if the parties
involved cannot agree on the selection of Trustees within 60 days of the law's
enactment date, an impartial umpire shall, at the petition of a party to the
dispute, be appointed by the District Court of the United States for the
District of Columbia. The Trustees will be appointed only from among persons who
have experience and expertise in the management of financial investments and
pension plans. The Trustees will be subject to reporting and fiduciary standards
similar to those under the Employee Retirement Income Security Act.
The new law also allows for railroad retirement benefit payments in the future
to be issued by a qualified non-governmental financial institution, rather than
the Treasury Department. The selection of the financial institution would be
made by the Railroad Retirement Board, after consulting with the Board of
Trustees and the Secretary of the Treasury. Railroad retirement payments will
continue to be processed through the U.S. Treasury in the meantime.
Effect on payroll tax rates. The new
law reduces the tier II tax rates on rail employers, including rail labor
unions, in calendar years 2002 and 2003, and beginning with 2004 provides
automatic adjustments in the tier II tax rates for both employers and employees.
It also repeals the supplemental annuity work-hour tax rate paid by employers,
beginning with calendar year 2002. The tier II tax rate on rail
employers and rail labor organizations is reduced from 16.10 percent to 15.60
percent in 2002 and to 14.20 percent in 2003, but the tier II earnings base is
not changed; and for 2002, that amount remains at $63,000. The tier II tax rate
for rail employee representatives will be 14.75 percent in calendar year 2002
and 14.20 percent in 2003. While there will be no change in the
tier II tax rate of 4.90 percent on employees in the years 2002 and 2003,
beginning with the taxes payable for calendar year 2004 tier II taxes on both
employers and employees will be based on the ratio of certain asset balances to
the sum of benefits and administrative expenses (the average account benefits
ratio). Depending on the average account benefits ratio, tier II taxes for
employers will range between 8.20 percent and 22.10 percent, while the tier II
tax rate for employees will be between 0 percent and 4.90 percent.
The new law does not affect tier I social security equivalent tax rates. The
tier I tax on employees and employers remains the same as for social security
covered employees and employers.
Other revenue provisions. While
supplemental railroad retirement annuities provided by the Railroad Retirement
Act continue to be due and payable, the new law, in addition to repealing the
supplemental annuity work-hour tax, also eliminates the separate Supplemental
Annuity Account under the Railroad Retirement Act. Supplemental annuities
provided under the Railroad Retirement Act will now be funded through the new
National Railroad Retirement Investment Trust. No changes were
effected in railroad unemployment insurance taxes on employers. ###
The Board is making every effort to notify by mail all parties
affected by this legislation as soon as possible. Therefore patience on the part
of annuitants would be appreciated when contacting Board offices, as a higher
than usual volume of calls is expected as a result of the passage of this
legislation.
Railroad Retirement Board offices are open to the public Monday through Friday,
except on Federal holidays. Persons can find the address and telephone number of
the Board office serving their area by calling the Board's automated toll-free
Help Line at 1-800-808-0772, or from the Board's Web site at www.rrb.gov. E-mail
inquiries about this legislation can be sent to the RRB by going to the Board's
Web site. Under "Latest News!" on the opening page, click on "Send us a secure
message about the new Law or its effect on you." |