Chapter 5: Railroad Benefits

Railroad Benefits Introduction and Overview

Introduction 

Retirement, survivor, disability, unemployment, and sickness insurance benefits for railroad employees are administered by the U.S. Railroad Retirement Board (RRB), an independent Federal agency headquartered in Chicago.  The term “Railroad Retirement Board” (RRB) refers both to the agency that administers the Federal benefits of industry employees and to the 3-member governing board that oversees the agency.

The programs are governed by the Railroad Retirement Act and the Railroad Unemployment Insurance Act.  Railroad retirement came into existence in 1936, and was substantially modified by the Railroad Retirement Act of 1974 (Public Law 93-445) which provided for closer coordination with the Social Security system.  In the House of Representatives, jurisdiction over the Railroad Retirement and Unemployment Benefit Programs is divided between two standing committees.  The Transportation and Infrastructure Committee has jurisdiction over legislation pertaining to “railroads… and railroad retirement and unemployment (except revenue measures related hereto).”  The Subcommittee on Railroads of the committee has primary responsibility for the Railroad Retirement Act (RRA) and amendments affecting railroad retirement.  The Committee on Ways and Means has jurisdiction over all revenue measures, including the Railroad Retirement Tax Act (chapter 22 of the Internal Revenue Code).  Within the Committee on Ways and Means, jurisdiction over employment taxes and trust fund operations relating to the Railroad Retirement System lies within the Subcommittee on Social Security.

Railroad Retirement and Survivor Benefits

Railroad retirement and survivor benefits are financed by: (1) payroll taxes paid by covered employees and employers on railroad earnings, up to a certain maximum wage base; (2) income from the financial interchange with the Social Security trust funds; (3) appropriations from general revenues (including transfers of income taxes collected on benefits); and (4) investment income.  The primary source of income to the Railroad Retirement Account is payroll taxes levied on covered employers and their employees.  These taxes are imposed on wages below an annual maximum amount known as the “wage base.”  The tier 1 tax is equivalent to the Social Security payroll tax, that is, both employers and employees generally pay a 6.2% tier 1 tax up to an earnings threshold ($117,000in 2014).  In December 2010, Congress approved a temporary 2 percentage point reduction in the tier 1 payroll tax rate for railroad employees along with a transfer of general revenues to the railroad retirement system to make up for the loss of payroll tax revenues; these provisions were extended through December 2012.  Since 1994, the hospital insurance (Medicare Part A) portion of the tier 1 tax, equal to 1.45 percent on employers and employees, has applied to all earnings.  In addition, a tier 2 tax is paid by both rail employers and employees.  In 2014, the tier 2 tax is 12.6% for employers and 4.4% for employees on earnings up to $87,000.  The Railroad Retirement and Survivors’ Improvement Act of 2001 (Public Law 107-90) made significant changes to the way the Railroad Retirement System is financed.  The 2001 law provided for investment of railroad retirement funds in nongovernmental assets (as well as government securities), periodic adjustments in tier 2 payroll tax rates paid by employers and employees, and repeal of the supplemental annuity work-hour tax paid by employers.

Employees are eligible for a tier 1 retirement annuity if they have at least 10 years of total railroad service, or at least 5 years of railroad service after 1995 and “insured status” under the Social Security rules (generally 40 quarters of coverage) based on combined railroad retirement and Social Security-covered earnings.  The tier 1 benefit is roughly equal to what the Social Security benefit would have been had the worker's railroad employment been covered by the Social Security program; the principal difference is that railroad workers with 30 years of service are eligible to receive full tier 1 benefits at age 60.  Tier 2 benefits, which are payable in addition to tier 1 benefits, are based entirely on the employee's service in the railroad industry.  For current retirees, the tier 2 benefit is equal to seven-tenths of 1 percent of the employee's average monthly earnings in the 60 months of highest earnings, times the total number of years of railroad service.  Annuities may be payable under both tiers to spouses, surviving spouses, children, and certain other beneficiaries.  Supplemental annuities are payable to employees age 65 or older with 25 or more years of railroad service who have a current connection with the railroad industry, and some service prior to October 1981, and whose regular annuities were awarded after June 30, 1966.  (An employee generally has a current connection if he or she has 12 months of railroad service in the 30 months preceding retirement or death, or if the employee did not perform any regular employment between the end of the 30-month period containing the last 12 months of railroad service and the month of retirement or death.)  Employees retiring after June 1974 with 30 or more years of service are eligible to receive supplemental annuities as early as age 60.

Disability Annuities

Workers who are totally and permanently disabled for all employment are eligible for tier 1 and tier 2 benefits if they have at least 10 years of total railroad service.  Workers who have at least 5 years of railroad service after 1995 (but less than 10 years of total service) are eligible only for tier 1 benefits before age 62 if their combined railroad retirement and Social Security earnings credits satisfy Social Security eligibility requirements (tier 2 benefits would be payable at age 62).  Otherwise, workers with employment covered under Social Security would have their railroad retirement credits transferred to Social Security and eligibility for Social Security disability insurance would be determined under Social Security rules.  In addition, workers who become totally disabled for their regular railroad occupation are eligible for an occupational disability benefit at age 60 with at least 10 years of railroad service, and at any age with at least 20 years of railroad service.  To qualify, the worker must have a current connection with the industry, which generally means that he or she worked for a railroad in at least 12 of the 30 consecutive months before the month in which an annuity begins to accrue.

Financial Interchange

The Railroad Retirement System and the Social Security program have been coordinated financially since 1951.  The purpose of the financial interchange is to place the Social Security Trust Funds in the same position in which they would have been if railroad employment had been covered under Social Security since its inception.  Doing so involves computing the amount of Social Security payroll and income taxes that would have been collected by the Social Security Trust Funds if railroad employment had been covered directly by Social Security, as well as the amount of additional benefits which Social Security would have paid to railroad retirement beneficiaries during the same fiscal year.  In the computation of the latter amount, credit is given for any Social Security benefits actually paid to railroad retirement beneficiaries.  When benefit reimbursements exceed payroll and income taxes, the difference, with an allowance for interest and administrative expenses, is transferred from the Social Security Trust Funds to the RRB’s Social Security Equivalent Benefit Account.  (Before 1985, transfers were made to the Railroad Retirement Account.)  If taxes exceed benefit reimbursements (which has not happened since 1951), a transfer would be made in favor of the Social Security Trust Funds.  The financial interchange with Social Security provided 34.4% of RRA funding in FY2013.  The determination of the amount to be transferred through the financial interchange for a given fiscal year is made no later than June of the year following the close of the preceding fiscal year.

The Railroad Unemployment Insurance Program

The Railroad Unemployment Insurance Act (Public Law 75-722) was passed in 1938 to provide a uniform unemployment insurance system for all railroad workers, regardless of the State in which they worked or lived.  The main reasons for this action were to avoid administrative problems in handling claims for railroad workers who earned wages in a number of States and to accommodate the railroad unions' desire that individuals throughout the industry be treated the same for purposes of unemployment compensation.

A new benefit year for unemployment and sickness benefits begins on July 1 of each year.  To qualify in the benefit year beginning July 1, 2014, an employee must have had railroad earnings of at least $3,512.50 in calendar year 2013, not counting earnings over $1,405 in any month.  If the base year was the first year of railroad service, the worker also must have worked in at least 5 months of that year.  No benefits are payable for the first 7 days of the first claim (or claims) for unemployment and sickness in a benefit year.  This generally results in a 1-week waiting period. A claimant is normally paid for benefits if he or she is unemployed or sick for more than 4 days in a 14-day period.  The maximum daily benefit payable in the benefit year that began July 1, 2014 is $70, and maximum benefits for biweekly claims is $700.  However, due to sequestration pursuant to the Budget Control Act of 2011, the maximum biweekly benefit is reduced by 7.2% to $649.60 through September 30, 2014.  The program offers “normal” and “extended” benefits.  Qualified workers can receive normal benefits for up to 130 days (26 weeks), but the total may not exceed their creditable wages in the base year.  Workers with at least 10 years of railroad service may receive up to 65 additional days (13 additional weeks) of extended benefits.  During 2009-2013, Congress provided up to 13 additional weeks of extended benefits to unemployed railroad workers, regardless of years of railroad service.

Sickness Benefits

Sickness benefits, established in 1946, are paid during short-term illnesses or injuries of railroad employees.  They are financed out of the same employer-paid payroll taxes used to finance unemployment compensation benefits.

The Railroad Unemployment and Sickness Benefit Programs are financed by payroll taxes on railroad employers.  The earnings base is adjusted each year to equal approximately two-thirds of the cumulative increase in the maximum base for railroad retirement tier 1 taxes since 1984.  Experience-based tax rates, under which employers who generate higher numbers of claimants of unemployment benefits pay somewhat higher rates, were phased in on a partial basis in 1991 and 1992, and became fully effective in 1993 with a minimum rate of 0.65 percent and a maximum rate of 12 percent.  The future maximum rate could be 12.5 percent if a maximum surcharge is in effect.  The Railroad Unemployment Insurance and Railroad Unemployment Insurance Administration Accounts are part of the Federal Unemployment Trust Fund.  Since 1959, the Railroad Unemployment Trust Fund has been able to borrow funds from the railroad pension fund when employer taxes have not been sufficient to cover the costs of unemployment and sickness benefits.  The RRB is required to submit an annual financial report to Congress on the status of the Unemployment Insurance System. 

Chapter Overview

This chapter of the Green Book includes two Congressional Research Service (CRS) Reports. A separate section identifies Tables and Figures included in the CRS reports and also provides additional tables and figures related to Earned Entitlements for Railroad Employees.  Additional sections include a Legislative History and Links to Additional Resources.

This page was prepared on September 18, 2014 for the 2014 version of the House Ways and Means Committee Green Book.

Railroad Benefits Congressional Research Service (CRS) Reports

The House Ways and Means Committee is making available selected reports by the Congressional Research Service (CRS) for inclusion in its 2014 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. 

RS22350: Railroad Retirement Board: Retirement, Survivor, Disability, Unemployment, and Sickness Benefits

RS22782: Railroad Retirement Board: Trust Fund Investment Practices

This page was prepared on September 18, 2014 for the 2014 version of the House Ways and Means Committee Green Book.

Railroad Benefits Tables and Figures in CRS Reports

The following tables and figures can be found in the CRS reports included in this chapter of the Green Book.

RS22350: Railroad Retirement Board: Retirement, Survivor, Disability, Unemployment, and Sickness Benefits

Table 1. Railroad Retirement, Survivor, and Disability Benefits

RS22782: Railroad Retirement Board: Trust Fund Investment Practices

Table 1. Trust Target Asset Allocations and Ranges

Table 2. Trust Expense Ratios

Figure 1. Trust Rates of Return Compared with Strategic Policy Benchmarks

This page was prepared on September 18, 2014 for the 2014 version of the House Ways and Means Committee Green Book.

Railroad Benefits Legislative History

The following provides a legislative history of benefits for railroad workers from the 112th Congress through the first session of the 113th Congress. For prior legislative history, please see the 2012 Green Book.

In the 112th Congress, the Middle Class Tax Relief and Job Creation Act of 2012 (Public Law 112-96) and then the American Taxpayer Relief Act of 2012 (Public Law 112-240) authorized extended unemployment benefits, which were first created in 2008, through the end of 2013.  No special extended unemployment benefit periods were authorized to begin after December 31, 2013.

This page was prepared on September 18, 2014 for the 2014 version of the House Ways and Means Committee Green Book.

Railroad Benefits Links to Additional Resources

Railroad Retirement Board, www.rrb.gov

Whitman, Kevin, An Overview of the Railroad Retirement Program, Social Security Bulletin, Vol. 68 No. 2, 2008.

This page was prepared on September 18, 2014 for the 2014 version of the House Ways and Means Committee Green Book.