[Congressional Record Volume 147, Number 48 (Wednesday, April 4, 2001)]
[Senate]
[Pages S3448-S3450]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself, Mr. Baucus, Mr. Hagel, Mr. 
        Rockefeller, Mr. Craig, Mr. Bingaman, Mr. Crapo, Mrs. Lincoln, 
        Mr. Brownback, Mr. Torricelli, Mr. Warner, Mr. Conrad, Mr. 
        Roberts, Mr. Kerry, Mr. Smith of Oregon, Mr. Daschle, Ms. 
        Collins, Mr. Breaux, Mr. Hutchinson, Ms. Milkulski, Ms. 
        Landrieu, Mr. Carper, Mr. Cleland, Mr. Schumer, Mr. Dorgan, Mr. 
        Biden, Mrs. Carnahan, Mr. Nelson of Nebraska, Ms. Stabenow, Mr. 
        Wellstone, Mr. Dayton, Mr. Sarbanes, Mr. Durbin, Mr. Bayh, and 
        Mr. Miller):
  S. 697. A bill to modernize the financing of the railroad retirement 
system and to provide enhanced benefits to employees and beneficiaries; 
to the Committee on Health, Education, Labor, and Pensions.
  Mr. HATCH. Mr. President, on behalf of myself, Senator Baucus, and 18 
other of our colleagues, I rise today to introduce the Railroad 
Retirement and Survivors' Improvement Act of 2001. This bill represents 
an important opportunity in the 65-year history of the Railroad 
Retirement system. Rail labor and rail management, working together, 
developed a proposal that would build on the system's strengths to 
modernize Railroad Retirement to provide better, more secure benefits 
at a lower cost to employers and employees. This proposal was further 
refined as a result of extensive discussions last year between rail 
labor and management and the congressional committees of jurisdiction.
  The bill we are introducing today builds on our efforts in the 106th 
Congress to reform the Railroad Retirement system. Last year, the 
predecessor to this bill, H.R. 4844, passed the House by a vote of 391-
25, and received similar bipartisan support in the Senate. Eighty 
senators signed a letter urging quick passage of the legislation, and 
on September 28, 2000, it was favorably reported by the Finance 
Committee. H.R. 4844 was placed on the Senate legislative calendar, but 
unfortunately, this is where the bill remained. Despite an overwhelming 
majority of Members in both houses in support of the bill, time ran out 
and the 106th Congress adjourned without this bill being brought up on 
the Senate floor.
  Both rail labor and rail management have come to the Congress to seek 
changes to their pension plan because Railroad Retirement is a unique 
system. It is the only private industry pension plan established in 
statute and administered by the federal government. As such, any 
changes in Railroad Retirement can be made only through legislative 
action. Historically, such legislation has reflected negotiated 
agreement by management and labor with the Congress followed by 
congressional consideration and enactment of necessary statutory 
changes. The legislation we introduce today continues this practice and 
embodies the reform principles agreed to by rail management and the 
vast majority of rail labor this past year.
  Some may ask, why reform the Railroad Retirement system at this time? 
Railroad Retirement has served railroad workers, their families, and 
their surviving spouses well for 65 years. Its roots reach back to the 
struggle to find answers to the hardships that resulted from the Great 
Depression of the 1930s. Today, the Railroad Retirement system is 
fiscally strong, providing benefit payments to more than 673,000 
retirees and other beneficiaries. The most recent report to Congress by 
the Railroad Retirement Board's chief actuary, which addressed the 
2000-2073 period, indicated that no cash-flow problems are expected to 
arise over that period. This strength, combined with the willingness of 
rail labor and rail management to work together constructively, 
provides an opportunity to address a number of concerns about Railroad 
Retirement that have developed in recent years.
  First, Railroad Retirement is very costly, both to employers and 
employees. It has two components: Tier I, which is largely equivalent 
to Social Security, and Tier II, which provides additional benefits and 
is similar to a private, defined benefit pension plan. Tier I and Tier 
II are funded primarily through payroll taxes on employers and 
employees--15.3 percent combined for Tier I, including Medicare, and 21 
percent for Tier II. Together, these payroll taxes make up a staggering 
36.3 percent of taxable payroll, a figure substantially higher than the 
cost other industries face to provide retirement benefits to their 
employees. This high cost represents a major financial burden to both 
employees and employers. Perhaps worse still, it constitutes a major 
disincentive for employers to hire new employees under Railroad 
Retirement.
  A second factor that led to the development of this legislation is 
the adequacy of the Railroad Retirement benefit structure. One special 
area of concern among retirees has been the widow's and widower's 
benefit under the Tier II portion of Railroad Retirement. Indeed, this 
was the subject of a 1998 hearing by the Ground Transportation 
Subcommittee of the House Transportation and Infrastructure Committee. 
That hearing was a spur to rail management and rail labor to engage in 
discussions about a broad range of issues affecting the system.
  Let me explain the reasons why this bill has the strong support of 
railroad retirees, railroad management, and the great majority of rail 
labor.
  First, it provides for increased responsibility by the railroad 
industry for the financial health of Railroad Retirement. Under current 
law, if changes in tax rates or benefits are needed to assure the 
financial health of the system, Congress is required to pass new 
legislation. The bill being introduced today would make Tier II tax 
rates more responsive to actual financing needs by establishing an 
automatic tax adjustment schedule. Under this statutory schedule, 
payroll taxes would be

[[Page S3449]]

raised or lowered automatically, without any further action by 
Congress, depending on the level of funds available to pay Railroad 
Retirement benefits. The schedule is designed to maintain a minimum 
balance of 4 years of benefit payments and a maximum balance of 6 
years. The four year minimum reserve balance represents a higher 
balance than has existed in the Railroad Retirement Account (RRA) for 
most of the past 40 years. Rail employers have agreed to bear entirely 
any tax schedule increases--employees and employers would share any tax 
decreases that might occur. Employees would have the option of seeking 
congressional action to convert any planned decrease in the employee 
tax rate to a benefit increase, and management has agreed to support 
such action.
  Second, the bill provides for greater flexibility in the investment 
of Railroad Retirement assets. This investment provision would apply 
only to Tier II, the portion of the program that is similar to a 
private pension plan and is funded entirely from industry sources. Tier 
I, the portion that is similar to Social Security and is linked to the 
Social Security system, would not be affected.
  Currently, investment of RRA assets is limited by law to U.S. 
Government securities. Actuarial projections for the RRA assume an 
annual return of 6 percent on investments. Between 1985 and 1998, the 
average annual return on RRA investments was unusually high at 9.12 
percent, but this still lagged far behind the average annual return to 
large multi-employer pension plans of 15.17 percent over the same 
period. The differential in returns between RRA investments and private 
pension plan investment portfolios contributes significantly to the 
high cost of funding the benefits provided from the RRA.
  This bill would provide the authority for the industry assets in the 
RRA to be invested in a diversified investment portfolio, as are the 
assets of private sector retirement plans. In the process of developing 
this proposal, concerns were raised by some Members of Congress that 
this aspect of the legislation could result in government intrusion 
into the equity markets. While the funds that would be invested are, in 
effect, railroad industry pension funds which, through historical 
circumstance, have been maintained in a government account, we have 
included a provision to draw a bright line distinction from current 
investment practice.
  The Congressional Committees of jurisdiction worked with labor and 
management last year to create a new structure that separates the new 
investment activity from the Railroad Retirement Account. This 
structure has been included in the legislation we introduce today. It 
would establish a new Railroad Retirement Investment Trust (RRIT), 
whose exclusive purpose would be the investment of RRA assets entrusted 
to it by the Railroad Retirement Board (RRB). The RRIT would not be an 
agency or instrumentality of the federal government. RRA assets would 
be transferred to the RRIT for investment and from the RRIT to a 
centralized disbursement agent that would pay the various components of 
the aggregate railroad retirement benefit in a single check to 
beneficiaries.
  The RRIT would have seven trustees chosen by the Railroad Retirement 
Board: three representing labor, three representing management and one 
representing the public interest. Trustees of the RRIT would be 
required to have experience and expertise in the management of 
financial investments and pension plans, and would be subject to 
fiduciary standards similar to those required by ERISA. The RRIT 
trustees would set investment guidelines for the prudent management of 
the assets entrusted to it, and select outside investment advisors and 
managers to implement its policies. Earnings on RRIT investments would 
be available only for the purpose of paying Railroad Retirement 
benefits and necessary expenses of the RRIT. I believe that these 
measures will allow for increased returns on the industry's pension 
plan while building an effective firewall between the government and 
the private markets.
  Third, this legislation would improve benefits for retirees and their 
families. In particular, it would resolve the concern regarding the 
benefit for widows and widowers under Tier II. Under current law, while 
the retired employee is alive, the couple receives a Tier II benefit 
equal to 145 percent of the retiree's benefit--the retiree's benefit 
plus a spousal benefit of 45 percent of the retiree's benefit. When the 
retiree dies, the spouse is left with a Tier II benefit of 50 percent 
of the retiree's benefit--a reduction of almost two-thirds. Under this 
bill, the surviving spouse would receive a Tier II benefit equal to 
that received by the retiree, preventing such a drastic reduction in 
survivor income.
  Also of key importance is a reduction in the current early retirement 
age of 62 with 30 years of service to age 60 with 30 years of service. 
This would return the age at which a railroad employee can retire with 
full benefits to what it was prior to 1984. It is significant that rail 
labor and rail management have agreed to revise their national 
collective bargaining agreement to conform the age of eligibility for 
retiree health benefits to 60, if this legislation is passed. There are 
also two other benefit improvements: the vesting requirement would be 
lowered from 10 to 5 years, a change which would align Railroad 
Retirement with current private industry pension practices; and the 
bill would also eliminate an arbitrary cap on Tier II benefits, known 
as the ``Railroad Retirement Maximum'', which can result in retirees 
and their spouses having their earned benefits substantially reduced.
  Fourth, Tier II payroll tax rates would be reduced for employers. 
Railroad employers currently pay 16.1 percent of taxable payroll into 
the RRA, which, as I have mentioned, is a rate substantially higher 
than other industries' pension contributions. The reduction of employer 
taxes would be phased in over the first 3 years following enactment of 
the bill. Employee tax rates would continue at the current 4.9 percent. 
Further tax reductions for employers and tax reductions for employees 
would be possible as provided under the tax adjustment mechanism I have 
already described. In addition, the supplemental annuity tax, a 26.5 
cents-per-hour tax paid entirely by rail employers, would be 
eliminated. Supplemental annuity benefits would continue to be paid to 
eligible beneficiaries.
  The legislation being introduced today is nearly identical to the 
legislation that was reported last year by the Senate Finance 
Committee, with the exception of updated effective dates.
  I am concerned that certain aspects of this bill have been 
undeservedly criticized since it was first introduced last year, and I 
believe it is important to put these criticisms to rest in order to 
avoid any further misconceptions.
  First, the legislation's budget impact has been mischaracterized and 
overstated. Under current scoring rules, CBO is required to treat the 
initial purchase of private securities by the Railroad Retirement 
Investment Trust as a government ``outflow.'' These private securities 
would become an asset of the RRIT, but would not be scored as a 
corresponding government ``inflow'' under current budget scoring rules, 
a decision which, I am told, the CBO characterized as a ``close call.'' 
CBO further indicated that some budget experts believe that OMB's long-
standing practice under ``Circular A-11'' may be ``ill-suited to 
purchases of financial assets that the government acquires as a way of 
preserving, or enhancing, the value of cash balances,'' and that they 
``may consider a different budget treatment in the future.''
  Simply put, even if the estimated $14.8 billion acquisition of 
private securities is scored as an initial outlay, the assets received 
in return would produce on-budget revenues in the form of interest, 
dividends and capital gains. Over time, these revenues will contribute 
to increasing future surpluses and reducing debt service. In fact, CBO 
estimated that after the third year under the Railroad Retirement and 
Survivors' Improvement Act, the program would add to the surplus in 
every succeeding year in ever-increasing amounts.
  Second, some have expressed concern that the transfer of federal 
income taxes on railroad retirement benefits into the Railroad 
Retirement trust fund is a Government subsidy. In fact, railroad 
retirees, concerned about the future of Railroad Retirement, agreed in 
1983 to the taxation of their benefits and the dedication of the 
proceeds to Railroad Retirement as a form of benefit cut to help 
support the long-term solvency of the program. If benefits

[[Page S3450]]

had been cut in the conventional way, there would be no question as to 
whether this would be considered a subsidy.
  Third, critics' claims that this legislation relies on Social 
Security funds or makes any changes to Social Security reflect a total 
misunderstanding of the relationship between Railroad Retirement and 
Social Security. Since 1950 there has been a financial interchange 
mechanism between Railroad Retirement and the Social Security system 
that ensures that neither system is advantaged or disadvantaged by 
which system covers a worker. The current bill would make no changes to 
this interchange process or to Social Security. As in the past, these 
Tier I funds would be available to pay benefits, would be considered 
assets of the Railroad Retirement program, and would be limited to 
investments in federal government securities.
  Railroad Retirement has always been a bipartisan concern. I hope that 
many more of our colleagues will join us in taking this opportunity to 
improve Railroad Retirement and the lives of its more than 673,000 
beneficiaries, and that we act early to ensure that there is plenty of 
time in this session to accomplish this important task.
  Mr. BAUCUS. Mr. President, I am pleased to join Senator Hatch as a 
lead cosponsor of the Railroad Retirement and Survivors' Improvement 
Act of 2001. The intent of this legislation is quite simple: improve 
the benefits of Railroad Retirement and modernize the financing of 
system. Many would agree that the current railroad retirement system is 
archaic and inequitable. As an example, one need look no further than 
the severe reduction in benefit payments faced by the 178,000 widows 
and widowers under the current policy. This is something that must be 
addressed promptly and the legislation we are introducing today 
improves survivor benefits substantially. Montana has about 6,600 
railroad retirement beneficiaries and about 3,200 active rail 
employees. Railroads are an important industry in Montana and many 
Montanans count on the railroad. I am cosponsoring this legislation to 
make sure railroad employees, retirees and their families receive 
adequate benefits from a system they can count on.
  This legislation has strong support from railroad companies, labor 
organizations, and retirees. When enacted, this legislation will 
provide earlier vesting and a lower minimum retirement age for railroad 
labor; improved benefits for widows and widowers of railroad retirees; 
and enhance the investment of pension contributions from rail companies 
and employees.
  Rail labor and rail management have come to the Congress to seek 
changes to their pension plan because Railroad Retirement is a unique 
system. It is the only private industry pension plan established in 
statute and administered by the federal government. As such, any 
changes in Railroad Retirement can be made only through legislative 
action. Historically, such legislation has reflected negotiated 
agreement by management and labor followed by Congressional 
consideration and enactment of necessary statutory changes. This 
legislation continues this practice and embodies reform principles 
agreed to by rail management and a majority of rail labor.
  I am pleased we have a significant bipartisan group of Senators 
joining us as original cosponsors, an indication of the broad support 
this legislation has earned. I also note that many of the original 
cosponsors are also members of the Senate Finance Committee, the 
committee that will receive the bill after its introduction today. I 
hope the committee will be able to take action on the bill soon.
  Mr. ROCKEFELLER. Mr. President, I am proud to be an original 
cosponsor of the bipartisan Railroad Retirement and Survivors' 
Improvement Act 2001, and I hope to work closely with Senators Hatch 
and Baucus and the bipartisan coalition to get this legislation enacted 
into law this year.
  In West Virginia, we have over 11,000 retirees and their families 
depending on railroad retirement. Almost 3,500 West Virginians are 
working for the railroads and will need their railroad retirement at 
some point in the future. Nationwide, there are about 673,000 railroad 
retirees and families, and about 245,000 active rail workers. They 
deserve a better retirement program, and I want to work with them to 
promote this historic package supported by both rail labor and rail 
management.
  There can be no doubt that improving retirement benefits for railroad 
workers, retirees, and their families must be one of our top 
priorities, and I am fully supportive of that effort. Right now, it 
takes ten years of service before a railroad worker becomes vested in 
the retirement plan, while private companies covered by Employee 
Retirement Income Security Act, ERISA, vest their employees in just 
five to seven years. The need to dramatically improve benefits for 
widows and widowers is obvious and has gone unaddressed for too long. 
It is tragic to slash the benefits of the widow of a railroad retiree 
upon the death of her spouse, as the current policy does. I understand 
the importance of these and other changes in retirement benefits for 
workers.
  Today, experts predict that the Railroad Trust Funds are solvent for 
the next twenty-five years, and existing policy guarantees benefits to 
railroad retirees and their families. Under the new plan, the railroads 
would pay a lower sum of taxes into the Railroad Retirement Trust 
Funds, but the fund would create an investment board to invest its 
reserves in private equities so the increased rate of returns would 
cover the expanded benefits. Under the plan, there is a provision to 
increase railroad taxes in the future, when necessary, to fully fund 
the railroad retirement benefits.
  As a member of the Senate Finance Committee, I want to enact 
legislation that will improve benefits for railroad retirees and their 
families, and I will be working with my colleagues to achieve that 
goal.
  Mr. WELLSTONE. Mr. President, I am pleased to join as a cosponsor of 
this important legislation to modernize the investment policies of the 
Railroad Retirement System. This legislation reflects an historic 
agreement reached between rail labor and rail management. it is good 
for workers, good for retirees, good for widows and widowers, good for 
rail employers, and good for the rail industry as a whole.
  This reform legislation is the product of two and a half years of 
negotiations and has had the grassroots support of nearly one million 
employees and beneficiaries who will benefit from its provisions. We 
came very close to enacting this measure into law at the end of the 
last Congress. I hope my colleagues will join me in moving the bill as 
expeditiously as possible.
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