[Federal Register Volume 62, Number 233 (Thursday, December 4, 1997)]
[Proposed Rules]
[Pages 64188-64190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31725]


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RAILROAD RETIREMENT BOARD

20 CFR Part 211

RIN 3220-AB23


Creditable Railroad Compensation

AGENCY: Railroad Retirement Board.

ACTION: Proposed rule.

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SUMMARY: The Railroad Retirement Board hereby proposes to amend its 
regulations to limit the crediting of pay for time lost to periods 
prior to the judgment or agreement establishing that payment or in the 
case of pay for time lost not attributable to a judgment or settlement, 
prior to the date of payment.

DATES: Comments must be received on or before February 2, 1998.

ADDRESSES: Secretary to the Board, Railroad Retirement Board, 844 North 
Rush Street, Chicago, Illinois 60611.

FOR FURTHER INFORMATION CONTACT: Thomas W. Sadler, Senior Attorney, 
Railroad Retirement Board, 844 N. Rush Street, Chicago, Illinois 60611, 
telephone 312-751-4513, TTD 312-751-4701.

SUPPLEMENTARY INFORMATION: Payments made for periods during which an 
employee is absent from the active service of an employer are 
considered to be ``pay for time lost'' and creditable compensation 
under the Railroad Retirement Act. Pay for time lost includes pay 
received due to an injury or due to loss of earnings attributable to 
the employee being placed in a position paying less money. Employers 
are required to allocate pay for time lost to the months in which the 
time was actually lost. Pursuant to section 211.3 of the current 
regulations, the Board will accept an allocation of pay for time lost 
for periods after the judgment or settlement, and after the payment is 
made. The practice has been costly to the railroad retirement system in 
that taxes under the Railroad Retirement Tax Act are imposed on 
railroad compensation at the time of payment up to the maximum taxable 
amount for the year in which the payment is made. Accordingly, if a 
personal injury suit is settled in 1997 and the railroad agrees to pay 
the employee $300,000 to be allocated as pay for time lost over the 
period 1997 through 2002 with $50,000 being designated to each year as 
pay for time lost, the employee would receive six years of retirement 
credit, but taxes would cover only one year of those additional 
credits.
    There is no requirement in the statute that pay for time lost be 
creditable prospectively and, in the view of the majority of the Board, 
to allow prospective crediting of pay for time lost cannot be justified 
in view of the additional, potentially large costs to the system.
    Section 1(h)(2) of the Railroad Retirement Act requires that pay 
for time lost must be paid with respect to an identifiable period of 
absence. This language, in the view of a majority of the Board, 
suggests that pay for time lost should be credited only to a known 
period of absence in the past. It is impossible to predict whether or 
not an

[[Page 64189]]

employee will remain absent from work in the future as a result of 
injury; accordingly, there is no truly identifiable period for 
prospective crediting of pay for time lost. Moreover, to allow parties 
to private litigation to pass on a portion of the costs of litigation 
to a Federal benefit program simply makes no sense.
    Based on its review of the statutory language and the legislative 
history, a majority of the Board, Labor Member dissenting, proposes to 
amend its regulations to prohibit crediting of pay for time lost beyond 
the date of the judgment or settlement or, in the absence of a judgment 
or settlement, beyond the date of payment. The proposed regulation 
excepts from these restrictions the crediting of deemed service months 
pursuant to section 3(i)(4) of the Railroad Retirement Act. That 
section provides that an employee who has performed service for 
compensation in less than twelve months of a calendar year, but has 
received compensation in excess of the amount that may be credited to 
the months of actual service, may have the excess credited to an 
additional month or months in that same year.
    The Labor Member has made a proposal that he believes resolves the 
financial problem with the existing procedure by requiring that taxes 
be paid in each of the years for which pay for time lost credit is 
sought. While the majority appreciates the Labor Member's efforts in 
attempting to resolve the problems with the current policy, the 
majority does not believe that the payment of taxes will fully fund the 
additional benefit payment and believes that the better approach would 
be to scrap what it believes to be a bad policy rather than tinker with 
it.
    Employees who negotiate prospective pay for time lost credits do so 
because without the additional credits they would not meet the service 
requirement of 20 years for an occupational disability annuity. 
Accordingly, without the prospective pay for time lost credits, no 
benefits would be payable to these employees until they reach age 60 or 
become totally and permanently disabled. Railroad retirement taxes paid 
for several years of pay for time lost will not cover the additional 
costs to the system of the occupational disability annuities that 
otherwise would not have been paid. Moreover, under the regulations, a 
month of pay for time lost credit may be granted based on an allocation 
of compensation to the month of at least 10 times the employee's daily 
wage rate. Accordingly, taxes would be payable on an allocation of as 
little as fifty percent of the employee's normal monthly compensation, 
but the employee would receive a full month credit for retirement 
purposes. The Labor Member's proposal does nothing to address this 
shortfall. The majority simply does not believe that it is appropriate 
to use trust fund moneys to subsidize the costs of private litigation.
    Finally, the majority views the Labor Member's proposal as, in 
effect, allowing employees to purchase retirement credit. In the view 
of the majority, this is simply bad policy.

Views of the Labor Member of the Board

    Section 1(h) of the Railroad Retirement Act authorizes the 
crediting of pay for time lost as compensation insofar as the employee 
and his or her railroad employer agree to that crediting in connection 
with an on-the-job injury. That provision thereby encourages the 
settlement of disputes and permits the allocation of loss between 
parties, in whatever way those parties themselves see fit and so 
negotiate, see 211.3(b) of the Board regulation 20 CFR Sec. 211.3(b).
    The majority, by limiting the employer's ability to provide for 
future lost wages as the result of an on-the-job injury, as proposed in 
this rule, interferes with an employer's and employee's ability to 
settle Federal Employers' Liability Act (FELA) claims. This needless 
intrusion into FELA disputes by the Board will only increase litigation 
of disputes which could easily have been settled. It also prevents 
personal injury settlements from achieving the goal of making injured 
employees, as far as possible, whole.
    The majority of the Board states that pay for time lost is being 
credited prospectively, after the date of settlement or judgment (or, 
in the absence of a settlement or judgment, after the date of payment), 
without taxes under the Railroad Retirement Tax Act being paid for 
those payments. This can be true where pay for time lost in the future 
is compensated for by a lump sum payment at the time of settlement. The 
Labor Member notes the majority says the current procedures are costly, 
but never states what that cost is, as requested by OMB. Nevertheless, 
the Labor Member has a proposal, explained below, that directly 
addresses this concern.
    The majority also suggests that the statute, by providing that pay 
for time lost may only be credited to an identifiable period of lost 
time, precludes prospective crediting of pay for time lost. This view 
reads more into the statute than is actually there. The Labor Member 
agrees with the majority that pay for time lost may be credited only to 
an identifiable period of lost time. That, he notes, does not mean that 
the statute precludes, in any way, the crediting of pay for time lost 
to a period of lost time after the date of settlement where agreed to 
by the parties. This was recognized by the Board as early as 1947 in an 
opinion by the Board's General Counsel, L-47-146. Indeed, the cases 
where pay for time lost is allocated into the future are generally 
those where the employee is so badly injured that he or she will never 
again be able to work in the railroad industry. The only way the 
employee may be made whole in such cases is by paying the employee for 
future lost wages and providing the retirement credits that would 
accrue from such future lost wages. As noted above, the Labor Member 
believes that the past policy of allowing the crediting of pay for time 
lost into the future has facilitated out-of-court settlement of 
disputes and has served the interests not only of employees, but also 
of employers. Although it is the opinion of the Labor Member that the 
past policy is good policy, he believes that the problem with 
prospective crediting of pay for time lost noted by the majority can be 
addressed by simply prohibiting pay for time lost in the future to be 
paid in the form of a lump sum. The Labor Member proposes that 
prospective crediting of pay for time lost be limited to periodic 
payments made in the year or years for which the credit is sought and 
where the employment taxes are paid with respect to those payments. 
Such payments are in the nature of wage continuation payments or 
dismissal payments which are clearly compensation under the Act, see 20 
CFR 211.9.
    For example, John Doe and ABC Railroad enter into a settlement 
agreement in July 1996 pursuant to which John Doe retains an employment 
relationship with ABC Railroad through 1998 and ABC Railroad agrees to 
pay John Doe pay for time lost in the amount of $150,000 for the years 
1996 ($50,000), 1997 ($50,000), and 1998 ($50,000). ABC issues a check 
to John Doe in 1996 for $50,000, minus the employee tax under the 
Railroad Retirement Tax Act, and pays the employer tax and the withheld 
employee tax under the Railroad Retirement Tax Act. ABC Railroad makes 
the same payments to John Doe on January 1, 1997 and January 1, 1998. 
John Doe would, under the Labor Member's proposal, receive credit for 
pay for time lost in 1996, 1997, and 1998. If ABC Railroad were to pay 
the $150,000 in a lump sum in 1996, John Doe would receive credit only 
in 1996. The payments in the

[[Page 64190]]

above example would be reported on the Employer's Annual Report of 
Compensation required under 20 CFR 209.6 along with other wages paid to 
other employees that year. Pay for time lost payments would be 
indistinguishable from regular wages. The Labor Member believes that 
his proposal would address the concern of the majority by fully funding 
the prospective pay for time lost credits while continuing to allow 
railroad employees and railroad employers to use pay for time lost 
allocations in a positive way to resolve disputes.
    With the modification he suggested, the Labor Member feels there is 
no further justification in the majority's position on this regulation. 
The majority has indicated that it is better to scrap a ``bad'' 
regulation rather than ``tinker'' with it. The Labor Member believes 
that making employees who are injured in service to the rail industry 
whole is not tinkering. It is a moral obligation.
    The majority also believes that the Labor Member's proposal amounts 
to allowing employees to purchase retirement credits. This is true. It 
would be allowed, however, for only those employees who have 
demonstrated through long years of service a career commitment to the 
rail industry, and then, only when they have been severely injured or 
otherwise incapacitated while performing rail service. Finally, it 
would be further limited to only those in the foregoing category who 
receive compensation from a settlement based on a conviction of both 
the railroad and the employee that the railroad would probably be found 
negligent in causing the employee's injury.
    The majority points out that the additional tax paid for several 
years of pay for time lost will not finance the additional benefits 
which would be paid under the Labor Member's proposal. The Labor Member 
believes that this is true but irrelevant. Completely aside from the 
obligation to make injured employees whole, whatever the cost, is the 
well established, clearly understood, and universally accepted feature 
of social insurance programs that the contributions paid by a disabled 
participant will rarely ever finance the actual benefits paid to such 
individual. Covering the cost of such eventualities from contributions 
of the remaining participants, including the negligent railroads, is 
the purpose of an insurance program. Disability benefits would 
virtually never be paid by any program under the condition laid down in 
this regulation by the Board majority.
    The majority notes that ten times the employee's daily rate of pay 
is too low an amount for a month of compensation. The Labor Member 
points out that an employee who is not injured need perform only one 
hour of service to get a month of railroad retirement credit. However, 
whenever low compensation months are used to obtain additional service, 
the compensation average on which the annuity is based is depressed, 
producing a lower benefit. In any event, the ten times daily pay rate 
rule has been set by regulation by a previous Board after full and 
careful review of the issue. The issue ought not be reopened now.
    Finally, the Labor Member notes that the majority references 
``employees who negotiate'' pay for time lost. This terminology clearly 
acknowledges that, under current procedures, prospective credit can be 
given only when the railroads have agreed to do so. Thus, the railroads 
already control the use of this procedure through their right to simply 
refuse to go along with prospective crediting. Therefore, there is no 
need for the regulation change herein proposed by the Board majority.
    The Office of Management and Budget has determined that this is a 
significant regulatory action under Executive Order 12866. There are no 
information collections associated with this rule.

List of Subjects in 20 CFR Part 211

    Pensions, Railroad employees, Railroad retirement.

    For the reasons set out in the preamble, chapter II of title 20 of 
the Code of Federal Regulations is amended as follows:

PART 211--[AMENDED]

    1. The authority citation for part 211 continues to read as 
follows:

    Authority: 45 U.S.C. 231(f).

    2. Section 211.3 is amended by adding paragraph (c):


Sec. 211.3  Compensation paid for time lost.

* * * * *
    (c)(1) Except as provided in paragraph (c)(2) of this section, pay 
for time lost may not be credited to any period after the date of the 
judgment or settlement agreement providing pay for time lost. If the 
payment is not the result of a judgment or settlement, pay for time 
lost may not, except as provided in paragraph (c)(2) of this section, 
be credited to any period after the date of payment.
    (2) Pay for time lost may be creditable as deemed service under 
section 3(i)(4) of the Railroad Retirement Act in the year in which 
either the judgment or settlement occurred or in the case of pay for 
time lost not attributable to a judgment or settlement, in the year in 
which the payment occurred.

    Dated: November 21, 1997.

    By Authority of the Board.

    For the Board.
Beatrice Ezerski,
Secretary to the Board.
[FR Doc. 97-31725 Filed 12-3-97; 8:45 am]
BILLING CODE 7905-01-P