Prepared by Public Affairs 312-751-4777
Employers and employees covered by the Railroad Retirement Act
pay higher retirement taxes than those covered by the Social Security Act, so
that railroad retirement benefits remain higher than social security benefits,
especially for career employees.
The following questions and answers show the differences in railroad retirement
and social security benefits payable at the close of the fiscal year ending
September 30, 2011. They also show the differences in age requirements and
payroll taxes under the two systems.
1. How do the average monthly railroad
retirement and social security benefits paid to retired employees and spouses
compare?
The average age annuity being paid by
the Railroad Retirement Board (RRB) at the end of fiscal year 2011 to career
rail employees was $2,835 a month, and for all retired rail employees the
average was $2,245. The average age retirement benefit
being paid under social security was
almost $1,185 a month. Spouse benefits averaged $840 a month under railroad
retirement compared to $565 under social security.
The Railroad Retirement Act also provides supplemental railroad retirement
annuities of between $23 and $43 a month, which are payable to employees who
retire directly from the rail industry with 25 or more years of service.
2. Are the benefits awarded to recent
retirees generally greater than the benefits payable to those who retired years
ago?
Yes, because recent awards are based on higher average earnings. Age annuities
awarded to career railroad employees
retiring at the end of fiscal year 2011 averaged nearly $3,405 a month while
monthly benefits awarded to workers
retiring at full retirement age under social security averaged some $1,640. If
spouse benefits are added, the combined benefits for the employee and spouse
would total $4,805 under railroad retirement coverage, compared to $2,465 under
social security. Adding a supplemental annuity to the railroad family's benefit
increases average total benefits for current career rail retirees to over $4,835
a month.
3. How much are the disability benefits
currently awarded?
Disabled railroad workers retiring directly from the railroad industry at the
end of fiscal year 2011 were awarded
more than $2,840 a month on the average while awards for disabled workers under
social security averaged about $1,150.
While both the Railroad Retirement and Social Security Acts provide benefits to
workers who are totally disabled for any regular work, the Railroad Retirement
Act also provides disability benefits specifically for career employees who are
disabled for work in their regular railroad occupation. Career employees may be
eligible for such an occupational disability annuity at age 60 with 10 years of
service, or at any age with 20 years of service.
4. Can railroaders receive benefits at
earlier ages than workers under social security?
Railroad employees with 30 or more years of creditable service are eligible for
regular annuities based on age and service the first full month they are age 60,
and rail employees with less than 30 years of creditable service are eligible
for regular annuities based on age and service the first full month they are age
62.
No early retirement reduction applies if a rail employee retires at age 60 or
older with 30 years of service and his or her retirement is after 2001, or if
the employee retired before 2002 at age 62 or older with 30 years of service.
Early retirement reductions are otherwise applied to annuities awarded before
full retirement age, the age at which an employee can receive full benefits with
no reduction for early retirement. This ranges from age 65 for those born before
1938 to age 67 for those born in 1960 or later, the same as under social
security.
Under social security, a worker cannot begin receiving retirement benefits based
on age until age 62, regardless of how long he or she worked, and social
security retirement benefits are reduced for retirement prior to full retirement
age regardless of years of coverage.
5. Does social security offer any benefits
that are not available under railroad retirement?
Social security does pay certain types of benefits that are not available under
railroad retirement. For example, social security provides children's benefits
when an employee is disabled, retired or deceased. Under current law, the
Railroad Retirement Act only provides children's benefits if the employee is
deceased.
However, the Railroad Retirement Act includes a special minimum guaranty
provision which ensures that railroad families will not receive less in monthly
benefits than they would have if railroad earnings were covered by social
security rather than railroad retirement laws. This guaranty is intended to
cover situations in which one or more members of a family would otherwise be
eligible for a type of social security benefit that is not provided under the
Railroad Retirement Act. Therefore, if a retired rail employee has children who
would otherwise be eligible for a benefit under social security, the employee's
annuity can be increased to reflect what social security would pay the family.
6. How much are monthly benefits for
survivors under railroad retirement and social security?
Survivor benefits are generally higher if payable by the RRB rather than social
security. At the end of fiscal year 2011, the average annuity
being paid to all aged and disabled
widow(er)s averaged $1,360 a month, compared to $1,115 under social security.
Benefits awarded by the RRB at the end of fiscal year 2011 to aged and disabled
widow(er)s of railroaders averaged nearly $1,785 a month, compared to almost
$895 under social security.
The annuities being paid at the end
of fiscal year 2011 to widowed mothers/fathers averaged $1,665 a month and
children's annuities averaged $940, compared to $855 and $755 a month for
widowed mothers/fathers and children, respectively, under social security.
Those awarded at the end of fiscal
year 2011 averaged $1,450 a month for widowed mothers/fathers and $1,230 a month
for children under railroad retirement, compared to $820 and $750 for widowed
mothers/fathers and children, respectively, under social security.
7. How do railroad retirement and social
security lump-sum death benefit provisions differ?
Both the railroad retirement and social security systems provide a lump-sum
death benefit. The railroad retirement lump-sum benefit is generally payable
only if survivor annuities are not immediately due upon an employee's death. The
social security lump-sum benefit may be payable regardless of whether monthly
benefits are also due. Both railroad retirement and social security provide a
lump-sum benefit of $255. However, if a railroad employee completed 10 years of
creditable railroad service before 1975, the average railroad retirement
lump-sum benefit payable is $1,000. Also, if an employee had less than 10 years
of service, but had at least 5 years of such service after 1995, he or she would
have to have had an insured status under social security law (counting both
railroad retirement and social security credits) in order for the $255 lump-sum
benefit to be payable.
The social security lump sum is generally only payable to the widow(er) living
with the employee at the time of death. Under railroad retirement, if the
employee had 10 years of service before 1975, and was not survived by a
living-with widow(er), the lump sum may be paid to the funeral home or the payer
of the funeral expenses.
8. How do railroad retirement and social
security payroll taxes compare?
Railroad retirement payroll taxes, like railroad retirement benefits, are
calculated on a two-tier basis. Rail employees and employers pay tier I taxes at
the same rate as social security taxes, 5.65 percent for employees and 7.65
percent for employers, consisting of 4.2 percent and 6.2 percent, respectively,
for retirement on earnings up to $110,100 in 2012, and 1.45 percent for Medicare
hospital insurance on all earnings.
In addition, rail employees and employers both pay tier II taxes which are used
to finance railroad retirement benefit payments over and above social security
levels.
In 2012, the tier II tax rate on earnings up to $81,900 is 3.9 percent for
employees and 12.1 percent for employers.
9. How much are regular railroad retirement
taxes for an employee earning $110,100 in 2012 compared to social security
taxes?
The maximum amount of regular railroad retirement taxes that an employee earning
$110,100 can pay in 2012 is $9,414.75, compared to $6,220.65 under social
security. For railroad employers, the maximum annual regular retirement taxes on
an employee earning $110,100 are $18,332.55, compared to $8,422.65 under social
security. Employees earning over $110,100, and their employers, will pay more in
retirement taxes than the above amounts because the Medicare hospital insurance
tax of 1.45 percent is applied to all earnings.
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