[Railroad Retirement Board 1988 Annual Report for Fiscal Year Ending September 30]
[From the U.S. Government Publishing Office, www.gpo.gov]
Railroad Retirement Board
NOV 2 0 1389
LIBRARY
fl!
TO THE CONGRESS OF THE UNITED^'
I hereby submit to the Congress the Annual Report of the Railroad Retirement Board for Fiscal Year 1988, pursuant to the provftnons^f section 7(b) (6) of the Railroad Retirement Act, enacted October 16 J 1974, and section 12(1) of the Railroad Unemployment Insurance ActJ enacted June 25, 1938.
Over 900,000 railroad retirees, their families, and 300,000 railroad employees rely on the railroad retirement system for social security equivalent benefits, rail industry pensions, and unemployment, disability, and sickness insurance benefits. These beneficiaries depend on the solvency and financial integrity of the railroad retirement trust funds to receive their benefits.
Recent actuarial projections included in the annual report indicate that, barring any large unanticipated declines in rail employment, the railroad retirement system will not experience short-term cash-flow problems. Board actuaries estimate that, based on Employee Retirement Income Security Act standards, the system has a $32 billion unfunded liability.
The long-term solvency of the railroad retirement system remains highly volatile. Refinancing legislation enacted in 1946, 1951, 1974, 1981, 1983, and 1987 serves as a reminder of this volatility. More recently, the Railroad Unemployment Insurance and Retirement Improvement Act of 1988 was enacted to ensure repayment of the unemployment insurance debt to the rail industry pension fund.
The Congress sought advice and created the Commission on Railroad Retirement Reform to examine issues relating to the long-term financing of the railroad retirement system. The Congress directed the advisory Commission to consider a range of financing alternatives that do not include general fund subsidies. Yet, as part of their fiscal year 1990 reconciliation bill, the Congress is once again considering
extending,gcneral-Wff^Wsidies to the rail industry pension fund. Since 1983, ov^jU.24nllion in subsidies, in the form of diverted income taxes on rail industry pensions, have been given to the pension fund. Income
tax on all other private pensions goes to the general fund. Under current law, this general fund subsidy provision will expire at the end of fiscal year 1989. Extending general fund subsidies establishes an undesirable precedent. I urge the Commission, in accordance with the congressional directive, not to recommend general fund subsidies in any form. In the long run, railroad retirees and employees will be best served by a financially stable system that relies solely on rail sector funding.
GEORGE BUSH
THE WHITE HOUSE, September 29, 1989.
RAILROAD RETIREMENT BOARD
1988 Annual Report for Fiscal Year Ending September 30
Letter of Transmittal
RAILROAD RETIREMENT BOARD
CHICAGO, ILLINOIS
AUGUST 22, 1989
TO THE PRESIDENT OF THE UNITED STATES OF AMERICA:
Pursuant to the provisions of section 7(b)6 of the Railroad Retirement Act and section 12(1) of the Railroad Unemployment Insurance Act, we have the honor to submit the report of the Railroad Retirement Board for the fiscal year ended September 30, 1988.
Respectfully,
Thomas J. Simon, Chairman
C. J. Chamberlain, Labor Member
John D. Crawford, Management Member
Contents
Page
THE YEAR IN BRIEF .............................. 1
I - LEGISLATIVE AND ADMINISTRATIVE DEVELOPMENTS ........................... 5
II - A REVIEW OF OPERATIONS
Railroad Retirement and Survivor Program ... 17
Medicare Enrollments ....................... 43
Railroad Unemployment and Sickness Program . 45
Railroad Employment ........................ 53
III-LEGAL RULINGS
Court Review ............................... 55
Administrative Rulings ..................... 56
Appeals .................................... 61
Covered Employers .......................... 62
CONSOLIDATED FINANCIAL OPERATIONS .............................. 63
ANNUAL REPORTTABLES ........................... 77
ACTUARIAL REPORT........................... 117
The Year in Brief
LEGISLATION
The most significant railroad unemployment insurance legislation in decades, the Railroad Unemployment Insurance and Retirement Improvement Act of 1988, was enacted on November 10, shortly after the close of the fiscal year.
The new law increased the railroad unemployment and sickness daily benefit rate from $25 to $30; indexes future benefit rates, qualifying earnings requirements and the tax base to national wage levels; experience rates future employer contributions; and assures repayment of the railroad unemployment insurance debt to the railroad retirement trust fund. In addition, this law included railroad retirement amendments to liberalize work restrictions and the crediting of military service in certain cases, and to provide more equitable treatment of separation or severance pay for railroad retirement purposes.
The Medicare Catastrophic Coverage Act, signed into law on July 1, 1988, which covers railroad retirement annuitants as well as social security beneficiaries, represents the most comprehensive expansion of the Medicare program since the program began. Designed to protect the elderly and disabled against financial ruin from a severe illness, the legislation sets a cap on charges Medicare beneficiaries pay out of their own pockets to doctors and hospitals.
BENEFITS PAID AND BENEFICIARIES
Benefits paid under the Railroad Retirement Act and Railroad Unemployment Insurance Act totaled $6.8 billion in fiscal year 1988. Total payments were $70 million more than in fiscal year 1987. Nearly 915,000 retirement and survivor beneficiaries were on the Board’s annuity rolls at the end of fiscal year 1988, and 87,000 railroad employees were paid unemployment-sickness benefits during the fiscal year.
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2 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Selected data on benefit operations
RETIREMENT-SURVIVOR
Fiscal year
1988
Fiscal year
1987
Regular employee annuities: Number awarded 21,300 21,900
Number being paid at end of period 407,600 413,800
Average being paid at end of period Supplemental employee annuities: $806 $760
Number awarded 11,000 11,000
Number being paid at end of period 199,600 200,300
Average being paid at end of period Spouse and divorced spouse annuities: i$47 !$47
Number awarded, total Number being paid to divorced spouses 17,800 18,000
at end of period 2,300 2,200
N umber being paid at end of period, total Average being paid to divorced spouses 220,100 222,300
at end of period $198 $187
Average being paid at end of period, total Survivor annuities: $342 $326
Number awarded to aged widow(er)s 13,500 13,600
Number awarded, total Number being paid to aged widow(er)s at 17,000 17,300
end of period 259,500 266,000
N umber being paid at end of period, total Average being paid at end of period to: 297,400 303,500
Aged widow(er)s $499 $480
Disabled widow(er)s $463 $447
Widowed mothers (fathers) $499 $485
Remarried widow(er)s $306 $289
Divorced widow(er)s $344 $326
Children $447 $432
Lump-sum survivor benefits awarded:
Number of lump-sum death benefits 8,100 9,000
Average lump-sum death benefit $840 $833
Number of residual payments 300 400
Average residual payment $4,949 $5,356
EMPLOYEES AND EARNINGS2
Average employment Taxable earnings, Railroad Retirement Act 313,000 325,000
(billions):
Tierl $11.55 $11.81
Tier II $10.30 $10.62
Taxable compensation, Railroad Unemployment
Insurance Act (billions) $2.39 $2.52
See footnotes at end of table.
THE YEAR IN BRIEF 3
Selected data on benefit operations - Continued
UNEMPLOYMENT-SICKNESS
Benefit year Benefit year
1988 1987
Qualified employees 393,000 419,900
Unemployment benefits:
Amount paid (millions) $85.8 3($79.8) $118.6
Beneficiaries 54,400 3(51,600) 75,200
Number of payments 417,800 630,200
Normal benefit accounts exhausted 10,600 17,000
Average payment per two-week
registration period $209.76 $206.88
Sickness benefits:
Amount paid (millions) $24.8 3($14.2) $55.7
Beneficiaries 41,700 3(41,300) 45,200
Number of payments 295,200 319,100
Normal benefit accounts exhausted 8,400 9,100
Average payment per two-week
registration period $232.85 $232.82
1 Supplemental annuities awarded under the 1974 Act, which averaged $42, constituted 78 percent of all supplemental annuities being paid, up from 76 percent a year earlier.
2 Figures in this section for fiscal year 1988 are preliminary.
3 Data in parentheses are for the fiscal year (October 1,1987-September 30, 1988).
Retirement and survivor benefits paid totaled $6,676 million during the fiscal year, $156 million more than in the prior year. Payments were made to approximately 981,000 beneficiaries. Employee, spouse, and divorced spouse annuitants were paid $4,915 million, accounting for 74 percent of the total payments. Employees received $3,904 million in regular annuities and $114 million in supplemental annuities, while spouses and divorced spouses received $897 million. Survivors were paid $1,753 million in annuities and $8 million in lump-sum benefits.
Unemployment and sickness benefits paid totaled $94 million (adjusted for recoveries of benefit payments, some of which were made in prior fiscal years) in fiscal year 1988, a decrease of some $85 million from the preceding year. Unemployment benefits totaling $80 million were paid to 52,000 beneficiaries during the year. Sickness benefits of $14 million were paid to 41,000 beneficiaries. Beneficiaries decreased under both the unemployment and sickness programs, by 29 percent and 8 percent, respectively, in comparison to the previous year.
FINANCING
The cash and investment balance in the Railroad Retirement Accounts was almost $8 billion at the end of fiscal year 1988 and the Railroad Unemployment Insurance Account’s debt to the Railroad
4 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Retirement Account had declined from a 1986 peak of $866 million down to $600 million in 1988. Actuarial projections indicate that, barring a sudden, unanticipated, large decrease in railroad employment, the railroad retirement system will not experience any cash-flow problems during the next 20 years. However, as indicated in previous Annual Reports, the long-term solvency of the railroad retirement system is still questionable in view of the system’s reliance on payroll taxes for funding and the continuing decline in rail employment. To address this concern, Federal budget legislation enacted on December 22, 1987, increased payroll taxes and established a Commission on Railroad Retirement Reform to conduct a comprehensive study of the issues pertaining to the long-term financing of the railroad retirement system. The Board’s most recent actuarial report, submitted June 14, 1989, is included in this Annual Report.
ADMINISTRATION
Thomas J. Simon was sworn in as Chairman of the Railroad Retirement Board on November 23, 1988. Mr. Simon previously served in the Office of Personnel Management in Washington, D.C. as Senior Administrator for Intra-Governmental Affairs and Associate Director for Administration. The Board appointed Kenneth P. Boehne Chief Executive Officer effective December 1, 1987. Mr. Boehne had served as the Board’s Chief Financial Officer and had previously been Director of Audit and Investigation.
Management developments included the adoption of an incremental multi-faceted approach to modernizing the processing of retirement claims. Using this approach, the Board was able to successfully implement several automation initiatives during fiscal year 1988, while developing a comprehensive 5-year plan. Other initiatives included the development of an employment data maintenance system and extensive work on a new system to allow unemployment benefit claimants to register for benefits by mail. The Board continued to make progress in implementing financial management initiatives and installed the latest version of the Federal Financial System software, one of two systems certified as meeting Federal financial requirements.
The Board’s Office of Inspector General (OIG) issued the first audit report on a railroad employer and completed the field work on two other audits of railroad employers. The Board’s first Inspector General was appointed in January 1986. Since that time, the OIG has achieved $240.2 million in actual and potential monetary benefits and 66 criminal convictions.
At the close of 1988, the Board’s personnel were preparing to implement provisions of the Railroad Unemployment Insurance and Retirement Improvement Act.
I. Legislative and Administrative Developments
LEGISLATIVE DEVELOPMENTS
1988 Unemployment Insurance and Retirement Legislation
The Railroad Unemployment Insurance and Retirement Improvement Act of 1988 was included in the Technical and Miscellaneous Revenue Act (Public Law 100-647), signed into law November 10, 1988. Based on the recommendations of the Railroad Unemployment Compensation Committee, the Act increased benefit rates, indexes future rates and qualifying earnings requirements to national wage levels, and requires a benefit waiting period each year. This legislation improves the railroad unemployment insurance system’s financing by indexing the tax base to increased wage levels, experience rating employer contributions and assuring repayment of the system’s debt to the Railroad Retirement Account. The new law also included railroad retirement amendments which ease the work restriction on retirees continuing nonrailroad employment, liberalize the requirements on the crediting of military service for veterans of the Korean War, and provide more equitable treatment of separation or severance pay for railroad retirement purposes. Social security amendments affecting railroad retirement beneficiaries were also included in the Act.
Unemployment Insurance Benefits
The maximum daily benefit rate for both unemployment and sickness benefits paid by the Railroad Retirement Board increased from $25 to $30 retroactively to July 1988, raising maximum biweekly benefits from $250 to $300. Beginning July 1, 1989, the maximum daily benefit rate increased to $31 as benefit rates were indexed to reflect approximately two-thirds of the growth in average national wages.
The $1,500 base year qualifying earnings requirement increases along with taxable compensation, but the base year minimum 3-month service requirement will not change. In 1989, the qualifying earnings requirement increased to $1,775, counting no more than $710 per month.
Waiting periods, generally two weeks, are now required in each benefit year before unemployment or sickness benefits are payable. Further two-week waiting periods are required in the event of unemployment due to a strike.
The amount of subsidiary remuneration from part-time work not inconsistent with full-time work, which unemployment benefit claimants can earn without affecting their benefits, was increased from $10 a day to $15 retroactively to July 1988.
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6 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Employers are provided the right to appeal claims of their employees after 1989, but such appeals will not prevent timely payment of benefits. However, employees may be required to repay benefits if their employers’ appeals are successful.
Unemployment Insurance Financing
The basic unemployment insurance tax rate of 8 percent paid by railroad employers, except in the case of certain commuter railroads, remains in effect for 1989 and 1990, but the tax will be experience rated for each employer in subsequent years. Experience-based tax rates will be phased in on a partial basis in 1991 and 1992, and become fully effective in 1993 with a maximum of 12 percent, or 12.5 percent if a maximum surcharge is in effect.
The $600 maximum on monthly compensation subject to the tax was indexed by approximately two-thirds of the growth in average national wages, and rose to $710 in January 1989.
For 1989 and 1990, public commuter railroads covered by the Railroad Unemployment Insurance Act are exempt from paying the 8 percent tax and instead reimburse the unemployment insurance system for the amount of benefits paid during the year to their employees, plus certain administrative costs. Starting in 1991, those railroads will again pay taxes on the same basis as other railroads.
The contingency surtax of 3.5 percent, effective in the event of further borrowing by the Railroad Unemployment Insurance Account, will be eliminated in 1991. Instead, a surcharge will be added to employers’ unemployment insurance taxes for a calendar year if the balance in the unemployment insurance account on the previous June 30 goes below $100 million. The surcharge rate would be 1.5, 2.5, or 3.5 percent depending on how low the balance had fallen. If a 3.5 percent surcharge goes into effect for a given year, the maximum rate for any employer would be 12.5 percent rather than 12 percent.
New provisions allow credits to employers if a large balance accumulates in the account. If the account balance on the preceding June 30 is above $250 million, the excess will be refunded to the employers in the form of a rate reduction for the year through a pooled credit.
The temporary loan repayment tax, paid in addition to the basic rate, was fixed at 4 percent in January 1989, and will remain in force at a 4 percent rate until the Railroad Unemployment Insurance Account debt to the Railroad Retirement Account is fully repaid with interest. The previous temporary taxable compensation base of $7,000 per year changed to an indexed monthly base of $710 in January 1989. Based on current projections, the 4 percent tax will fully repay the loan by the late 1990’s.
LEGISLATIVE AND ADMINISTRATIVE DEVELOPMENTS 7
The Railroad Retirement Board is required to make annual financial reports to Congress beginning July 1, 1989, on the status of the unemployment insurance system, and the Comptroller General will conduct a study to determine the extent and impact of fraud and payment error in the railroad unemployment program.
Retirement Benefits
The amendments eliminated the railroad retirement "last person service” (LPS) provision, which required suspending the annuities of retired employees and spouses who returned to work for their last preretirement nonrailroad, employer, but added a new earnings restriction applicable to LPS. The prohibition on receiving railroad retirement or survivor benefits while working for any railroad employer was retained. The tier 1 railroad retirement benefits and vested dual benefits of annuitants who continue in, or return to, LPS are subject to the same social security earnings deductions that apply to the tier I and vested dual benefits of other railroad retirement annuitants whose earnings exceed annual exempt amounts. But, LPS also reduces tier II benefits and supplemental annuity payments, which are not otherwise subject to earnings deductions, by one dollar for each two dollars of compensation received for LPS, subject to a maximum reduction of 50 percent. The deductions in the tier II benefits and supplemental annuities of individuals who work in LPS apply even if earnings do not exceed the tier I exempt earnings limits. Also, while tier I earnings deductions stop when an annuitant attains age 70, LPS tier II and supplemental deductions continue to apply after an annuitant attains age 70.
The amendments liberalized the requirements for obtaining railroad retirement credit for service in the Armed Forces between June 15, 1948, and December 15, 1950. Many enlistees in this period had not been allowed service credit because there was not a national state of emergency in force during this period before the Korean War. Railroad retirement credit may now be deemed for such individuals under certain conditions. They must meet the general requirement for military service credits by having rendered railroad service in the year they entered military service or the preceding year. In addition to meeting the general requirement, they must have returned to railroad service in the year they were discharged from military service or in the succeeding year and not have worked outside the rail industry before resuming railroad employment.
Separation and severance payments subject to railroad retirement payroll taxes frequently do not yield commensurate railroad retirement service credits because taxes are assessed on the basis of when compensation is paid while earnings credits are allocated on the basis of when compensation is earned. The amendments provided that a lump sum, approximating railroad retirement tier II payroll taxes deducted
8 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
from separation or severance payments, may be paid upon retirement to employees with 10 years of service, or their survivors, to the extent that the separation or severance payments did not yield additional railroad retirement service credits. The lump-sum provision applies to separation and severance payments made after 1984.
The amendments changed the amount that employee disability annuitants are allowed to earn before their benefits become subject to earnings deductions from $200 a month to $400. Under the amendments, an employee disability annuity is not payable for any month in which the annuitant earns more than $400 in any employment or self-employment. Withheld payments are restored if annual earnings are less than $5,000. Otherwise, the annuity is subject to a deduction of one month’s benefit for each multiple of $400 earned over $4,800. In determining earnings subject to this limitation, an adjustment is made for disability-related work expenses.
Social Security Amendments
Social security benefit deductions for excess earnings in the year of a beneficiary’s death, which also apply to railroad retirement tier I, vested dual benefit amounts, and survivor benefits, were liberalized so that the annual earnings exempt amount will no longer be prorated on a monthly basis for the year of a beneficiary’s death. Under the amendments, benefit deductions for earnings in the year of the beneficiary’s death will not be made unless those earnings exceed the annual limit for that year. In addition, for persons who die in the year of their 65th birthday, the higher earnings exempt amount applicable upon attainment of age 65 will also apply to those who die before their 65th birthday.
The amendments liberalized the provisions requiring reductions in the social security and tier I railroad retirement benefits of employees awarded certain Federal, State or local government pensions and certain foreign pensions in recent years. Under the amendments, lesser benefit reductions apply to employees with between 21 and 29 years of substantial railroad retirement or social security covered employment, as opposed to 26 to 29 years of such coverage under prior law. The amendments also included a technical provision to apply the reduction in the first month of concurrent entitlement to the two benefits, rather than the first month of concurrent eligibility.
Reductions are applied to social security and tier I railroad retirement spouse and widow(er) benefits if the spouse or widow(er) is also entitled to a Civil Service Retirement System pension based on the spouse’s earnings from Federal employment not covered by the Social Security Act. Beneficiaries covered under the new Federal Employees Retirement System (FERS), which includes social security coverage, are exempt from this reduction. This technical amendment exempted
LEGISLATIVE AND ADMINISTRATIVE DEVELOPMENTS 9
persons who opted for FERS coverage before July 1988, even if their B’ederal employment terminated before the FERS coverage became effective.
Social security benefits, tier I railroad retirement benefits and lump-sum death benefits will not be payable to beneficiaries deported for certain World War II Nazi activities, just as benefits have not been payable under prior law to most other deported beneficiaries.
Medicare Catastrophic Coverage
In 1989, the Medicare Catastrophic Coverage Act limits the amount a Medicare beneficiary must pay for inpatient hospital and skilled nursing facility care, and improves skilled nursing facility and hospice benefits. Other changes - limiting payments for physician services and medical supplies, providing new coverage for preventive breast cancer screening, respite care and certain prescription drugs, and improving the home health benefit — take effect in 1990. An expanded prescription drug benefit begins in 1991.
Catastrophic coverage will be financed by additional increases in the basic Medicare premium deducted from monthly social security and railroad retirement benefit payments, and also by a supplemental Medicare premium, based on the Federal income tax liability of Medicare beneficiaries, which will be paid directly to the Treasury as part of a beneficiary’s annual income tax return.
1987 Legislation
As detailed in the Board’s previous Annual Report, the Federal budget deficit reduction bill enacted on December 22, 1987, Public Law 100-203, established a Commission on Railroad Retirement Reform to conduct a comprehensive study of the issues pertaining to the long-term financing of the railroad retirement system. The Commission will submit recommendations to the Congress for revisions in, or alternatives to, the current payroll tax method of financing in order to assure the provision of retirement benefits to current and future retirees on an actuarially sound basis. The Commission, consisting of seven members representing railroads, including commuter railroads, labor, and the public, will submit its report to the President and both Houses of Congress. In the interim, this legislation increased tier II tax rates in January 1988 to 16.10 percent on employers and 4.90 percent on employees. The budget deficit law also extended for 1 year, until October 1, 1989, the time during which revenues from Federal income taxes on tier II railroad retirement benefits may be transferred to the Railroad Retirement Account for use in paying benefits.
Enactment of the Federal budget legislation rescinded temporary 1987 Gramm/Rudman/Hollings Act reductions of 8.5 percent previously
10 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
applied to railroad retirement supplemental annuity payments and railroad unemployment and sickness benefit payments. These benefits were retroactively restored to previous levels. However, related budget legislation (Public Law 100-202) reduced certain spending appropriations for fiscal year 1988 by 4.26 percent, which reduced the funds available for payment of vested dual benefits. The Railroad Retirement Board’s appropriation for administrative expenses for fiscal year 1988 was also reduced by 4.26 percent.
ADMINISTRATIVE DEVELOPMENTS
Officials
Thomas J. Simon was sworn in as Chairman of the Railroad Retirement Board on November 23, 1988. Mr. Simon previously served in the Office of Personnel Management in Washington, D.C. as Senior Administrator for Intra-Governmental Affairs and Associate Director of Administration. Prior to that, he was Director of the Office of Program Initiatives for the General Services Administration, Expert Consultant for the Social Security Administration, Associate with David M. Griffith and Associates, Principal with Warren King and Associates, Corporate Cash Manager with Reserve Insurance Company, Assistant to the Vice Chairman with Citizens Bank and Trust, and Assistant Treasurer and Financial Analyst with the Chicago and North Western Railway.
The Board appointed Kenneth P. Boehne Chief Executive Officer effective December 1,1987. Mr. Boehne previously served as the Board’s Chief Financial Officer, Director of Fiscal Operations, and Director of Audit and Investigation. Peter A. Larson was named Chief Financial Officer, succeeding Mr. Boehne. The Board also appointed Maynard I. Kagen as Chief Actuary, Bobby V. Ferguson as Director of Program Analysis and Ronald J. Hodapp as Director of Information Resources Management.
System Modernization
During the fiscal year, the Railroad Retirement Board adopted an incremental, multi-faceted approach to modernizing its retirement claims systems. This approach will modernize existing systems, allow flexibility in implementing changes without major disruptions, provide for an early payback and encourage the development of PC-based solutions. An interbureau planning group of key staff members was established to develop a comprehensive plan for further automation of retirement claims processing operations. The group developed a comprehensive 5-year plan which outlines 23 distinct retirement claims improvement projects. One of the first projects will be the development of an integrated database built by converting current files to a database environment.
LEGISLATIVE AND ADMINISTRATIVE DEVELOPMENTS 11
Two initiatives accomplished in 1988 produced significant improvements in the overall timeliness of payment of initial retirement claims. The first established an on-line input system for initial retirement claims and Medicare enrollments taken in the Board’s field offices. The second involved a change which allows the Board to accept and pay most initial retirement claims without the delays involved in obtaining current year service and compensation information. The combined impact of these two initiatives is a reduction of 10 to 40 days in the average processing time required for initial payments.
The Board is also developing an employment data maintenance initiative which will establish a database of wage and service data needed for benefit eligibility and entitlement decisions and for calculating retirement and unemployment insurance benefit rates.
In addition to the retirement automation projects, extensive work was completed on a major initiative in the railroad unemployment insurance program. A new system is being developed which will allow unemployment insurance claimants to register for benefits with field offices by mail. The claims will be entered on-line and transmitted to railroad employers for verification of employment information prior to payment by headquarters.
Other automation improvements during fiscal year 1988 included expanding the on-line change of address system to include direct deposit enrollments, an automated death notice procedure that decreases the processing time for survivor applications, and the automation of award letters to annuitants. Electronic mail went into use both in headquarters and its field offices. The Board also installed the latest version of the Federal Financial System software, one of the two systems certified as meeting Federal financial requirements. This system provides better scheduling of administrative payments for cash management purposes and will facilitate modernization of accounts receivable, travel management and cost accounting.
Other Management Developments
The Board is implementing the requirements of the Computer Security Act of 1987 by identifying the systems that contain sensitive information, preparing computer security plans for identified systems and providing training on computer security. A Data Integrity Board was established in connection with the Computer Matching and Privacy Protection Act of 1988 and the Board is expanding its contingency plan for operations in the event of a disaster.
In fiscal year 1988, the Board was one of four agencies to volunteer to participate in a new Federal income tax offset program the Department of the Treasury is developing for small agencies. Under this program, delinquent debts owed the Board are referred to the Internal Revenue Service for collection by offset against any income tax refunds due the debtors. As part of a government-wide initiative, in fiscal year 1988, the
12 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Board also began to assist in the collection of other Federal debts, such as delinquent student loans owed to the Department of Education.
Other projects to improve programs and operations include the initiation of a comprehensive review and revision of the Board’s regulations and a concerted effort to reduce major backlogs. A detailed study of requirements for an experience-rated unemployment contributions system was completed. A monitoring program was developed for annuitants ages 90-105 to determine if any were in need of a representative payee and to uncover any unreported deaths.
Changes resulting from the Tax Reform Act were implemented. In addition, the taxation accounting system database was expanded to include a statement tax record for each railroad retirement beneficiary, a personal computer program was implemented to print manual tax statements and a program for requesting computer-generated duplicate tax statements was begun.
In an effort to improve working conditions, physical improvements were made to both the exterior and interior of the headquarters building. Old conventional furniture is being replaced with systems furniture which requires less space, and the number of personal computers and terminals is being increased. Substantial cost savings have been achieved due to a change in the type of telephone system. In addition to savings of $6,000-$7,000 in monthly charges and cost reductions in physical phone moves, the new system provides in-house programming capabilities on individual lines.
Management Improvement Awards
During the year, Board employees submitted 108 suggestions for administrative improvements through the Incentive Awards Program; 63 of the suggestions were adopted. For special achievements in the performance of their duties, 861 employees received awards.
In March 1989, Chief Executive Officer Kenneth Boehne was honored with the Donald L. Scantlebury Memorial Award for distinguished leadership in financial management improvement. The Scantlebury Award recognizes senior executives who, through outstanding and continuous leadership in financial management, have been principally responsible for significant economies, efficiencies and improvements in Federal, State or local government. The award is administered by the Principals of the Joint Financial Management Improvement Program— the Secretary of the Treasury, the Comptroller General of the United States, the Director of the Office of Management and Budget, and the Director of the Office of Personnel Management.
In recent years, the Railroad Retirement Board has been in the forefront of Federal financial management, frequently among the first to implement new Federal financial management improvement programs, respond to new guidelines, and use innovative approaches.
LEGISLATIVE AND ADMINISTRATIVE DEVELOPMENTS 13
Achievements under Mr. Boehne’s direction include the development of an internal audit organization and staff; audit recommendations resulting in increased investment income and administrative improvements; the implementation of an automated financial management system integrating accounting and budgetary functions utilizing off-the-shelf software; the development of an automated payroll/personnel system utilizing off-the-shelf software; the issuance of the agency’s first financial statements prepared on an accrual basis of accounting; the administration of a cash management improvement program which saved the Board’s trust funds $44 million in fiscal year 1987; the improvement of the agency’s debt collection practices; and numerous other improvements to accounting, budget and financial management activities.
Mr. Boehne was previously honored in 1981 when he was selected by the Arthur S. Flemming Commission for honors as one of ten outstanding Federal employees in the nation under age 40.
Inspector General’s Office
On January 14, 1986, the Railroad Retirement Board’s first Inspector General was appointed. At that time, the office included only nine auditors and two investigators. The Office of Inspector General (OIG) has grown to 55 employees. Since January 1986, the OIG has achieved $240.2 million in actual and potential monetary benefits and 66 criminal convictions. These results are equivalent to an annual payback of $2.8 million per employee and nearly three convictions per investigator.
During fiscal year 1988, the OIG issued the Office of Investigations Special Agent Handbook and the Administrative and Procedural Manual, determined that $17.5 million in disability benefits were not paid timely during fiscal year 1987 and maintained contacts and initiated additional personal contacts with U.S. Attorneys across the country, the U.S. Secret Service, the FBI and various other Federal and local law enforcement agencies. The OIG also issued the first audit report by the Board on a railroad employer, completed the field work on two other audits of railroad employers, and prepared a Management Alert Report regarding provisions of the Competitive Equality Banking Act, limiting the period of reclamation by the Department of the Treasury.
Priorities of the OIG during fiscal year 1989 are the accuracy and timeliness of claims processing, the integrity of the trust funds, the adequacy of internal controls in data processing programs and the investigation of fraud and abuse in the Board’s programs. Particular attention is being paid to the disability program, health care and retirement matters.
14 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Information Activities
The Board maintains direct contact with railroad retirement beneficiaries through its almost 100 field offices located across the country. Field personnel explain benefit rights and responsibilities on an individual basis, assist employees in applying for benefits and answer any questions related to the benefit programs. The Board also relies on railroad labor groups and employers for assistance in keeping railroad personnel informed about its benefit programs.
Informational Conferences
During the 1988 fiscal year, 2,052 railroad labor union officials attended 58 railroad retirement system informational conferences held in 58 cities throughout the United States.
At these conferences, Board representatives describe and discuss the benefits available under the railroad retirement-survivor, unemployment-sickness and Medicare programs; and the attendees are provided with comprehensive informational materials describing in detail the benefit provisions as well as the administration and financing of the programs.
Informational conferences, inaugurated by the Labor Member of the Railroad Retirement Board in 1957, have since become an integral part of the Board’s public information program. The understanding of the benefit programs achieved by labor officials at these conferences has, in turn, enabled the officials to convey program information to their fellow workers in their day-to-day contacts on the job. These conferences consequently help assure that railroad workers are kept aware of their benefit rights and responsibilities, while saving substantial information activity costs that would otherwise be incurred by field offices. In addition, railroad labor unions frequently request that a Board representative speak before their meetings, seminars and conventions, and be available to answer questions about the railroad retirement and unemployment insurance systems. In fiscal year 1988, the Labor Member's Office was represented at 25 union gatherings attended by 3,085 railroad labor officials. Field personnel addressed 77 local union meetings with 5,181 members in attendance. There was a total of 102 meetings, with a total attendance of 8,266.
Seminars for Railroad Officials
During the 1988 fiscal year, the Management Member’s Office conducted 13 seminars, attended by 394 railroad officials.
Seminars for railroad executives and managers were initiated by the Management Member of the Railroad Retirement Board in 1977. At these meetings, Board representatives review the benefit programs,
LEGISLATIVE AND ADMINISTRATIVE DEVELOPMENTS 15
financing, and administration, with special emphasis on those areas which require cooperation between railroads and Board offices. Recent seminars have focused on the provisions of Public Law 100-647 including the new experience rating system, prepayment verification of unemployment and sickness insurance claims, a new lump-sum payment related to separation and severance payments, and changes in crediting military service.
These meetings have facilitated cooperation and coordination, and they have helped keep railroad officials up-to-date on the benefit programs. In addition, the Management Member’s Office conducted four pre-retirement counseling seminars attended by 90 railroad employees and their spouses.
The Board’s Bureau of Compensation and Certification conducted three employer seminars, attended by 45 railroad officials representing 27 employers. The seminars provided information regarding annual quarterly reporting requirements, new legislation, employer tax information and other matters of service and compensation.
II. A Review of Operations
Introduction
All financial information (except when the term "paid” or "collected” is used) for fiscal years 1987 and 1988 is presented on the accrual basis of accounting instead of the cash basis of accounting. However, benefit operations data presented on pages 29 44 for the railroad retirement and survivor program and pages 49-53 for the railroad unemployment and sickness insurance program are on a cash basis of accounting.
The primary difference between the two bases of accounting is that the accrual basis recognizes revenue when it is earned and expenditures when they are incurred. The cash basis, on the other hand, recognizes revenue and expenditures only when cash is received or paid.
Because of the difference in accounting methods, financial figures for fiscal years 1987 and 1988 are not comparable to those for earlier years.
RAILROAD RETIREMENT AND SURVIVOR PROGRAM
Financial Operations
Funds for railroad retirement and survivor benefits are held in four accounts. The Social Security Equivalent Benefit (SSEB) Account, established in fiscal year 1985, pays the portion of railroad retirement benefits equivalent to a social security benefit and has various income sources related to these benefits. The Railroad Retirement (RR) Account receives all revenue items and makes all expenditures not allocated to the SSEB Account, except for those relating to vested dual benefits and supplemental employee annuities, which are paid from the Dual Benefits Payments (DBP) Account and the Railroad Retirement Supplemental (RRS) Account, respectively. The four accounts together incurred $6,748.9 million in benefits (excluding $844.3 million in social security benefits) during fiscal year 1988. Revenue to the accounts exceeded expenditures by $1,105.4 million, and the combined equity balance was $8,397.1 million at the end of fiscal year 1988.
Railroad Retirement Account
The equity balance in the RR Account at the end of fiscal year 1988 (September 30, 1988) was $7,896 million and includes $599.7 million in
17
18 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
loans and interest receivable from the Railroad Unemployment Insurance (RUI) Account. The RR Account equity balance increased by $706.7 million during the fiscal year.
Revenue to the Railroad Retirement Account during fiscal year 1988 totaled $4,169.7 million. Payroll taxes amounted to $2,260.8 million, 54.2 percent of total income and $135.9 million more than in fiscal year 1987. Federal income tax transfers netted $242 million during the year, after adjustments totaling $68 million for the 1986 U.S. Treasury income tax reconciliation.
Funds amounting to $844.3 million during the fiscal year were transferred to the RR Account from Social Security Trust Funds to cover Board payments of social security benefits. Social security benefits awarded after 1974 to retired railroad employees and their families, while adjudicated by the Social Security Administration, are paid from the RR Account. The RR Account is reimbursed for these payments from the Social Security Trust Funds.
Revenue also included loan interest from the RUI Account of $62.7 million and RUI repayment taxes of $139.7 million from railroad employers. However, loan and interest receivables were reduced by actual tax receipts during the period of $157.6 million. No additional loans were made to the RUI Account in fiscal year 1988, and the total year-end loan balance, including interest due, dropped by $144.9 million during the year. Investment income for the year was $620.2 million, $104.4 million more than the prior year’s earnings.
Expenditures from the RR Account during fiscal year 1988 totaled $3,304.4 million. Benefit payments of $2,370 million accounted for 71.7 percent of the expenditures. Other expenditures included payments of $844.3 million in social security benefits to railroad families, $27.2 million for administrative expenses, and $62.9 million in payroll tax refunds to railroad employers.
Social Security Equivalent Benefit Account
The SSEB Account tracks revenue and expenditures related to social security level portions of railroad retirement annuities. Revenue to the SSEB Account includes the social security equivalent portion of payroll taxes, Federal income tax revenues on social security level benefits, financial interchange transfers from the Social Security Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds, and interest on investments.
The net financial interchange transfer from OASDI and HI Trust Funds of $2,616.9 million represents the estimated amount of $2,954.1 million due from the OASDI Trust Funds less the estimated amount of $337.2 million ($319.1 million principal and $18.1 million interest) to be transferred to the Federal Hospital Insurance Trust Fund. These amounts include interest for the period October 1, 1987, through the date
A REVIEW OF OPERATIONS 19
of transfer, June 2, 1988, on amounts due but unpaid at the end of fiscal year 1987. The financial interchange is intended to place the Social Security OASDI and Hospital Insurance (HI) Trust Funds in the same position in which they would have been had railroad employment been covered by the Social Security and Federal Insurance Contributions Acts. Actual determination and settlement of the above amounts were made in June 1989. In fiscal year 1988, $2,851.3 million was transferred to the SSEB Account from the OASDI Trust Funds, and $363.8 million was transferred from the SSEB Account to the HI Trust Fund. The HI amount represents the payroll taxes for hospital insurance that were received during fiscal year 1987, with allowances for administrative expenses and interest. Hospital insurance benefits do not enter into the transfer as they are paid directly from the HI Trust Fund. These transfers represent the actual amounts due in fiscal year 1987 plus interest amounts due to the date of the transfers, June 2,1988.
As part of the annual financial interchange, an adjustment is made between the SSEB Account and the RR Account to compensate for the portion of the net transfer from the OASDI and HI Trust Funds attributable to adjustments for years before fiscal year 1984, the period for which the interchange was with the RR Account. The adjustment to the June 1988 financial interchange consisted of a transfer of nearly $1.6 million from the SSEB Account to the RR Account and was netted against a supplementary medical insurance benefits (SMIB) premium deduction of $2.6 million as a prior period adjustment in the Statement of Operations. The adjustment in fiscal year 1987, a transfer of $16.5 million from the RR Account to the SSEB Account, accounted for all pre-1984 adjustments associated with the 1985, 1986, and 1987 interchanges.
Each month, the Board determines the amount and direction of the SSA/RRB financial interchange transfer. If the determination favors the SSEB Account, as it did throughout fiscal year 1988, the U.S. Treasury advances the amount to the account from general funds. Interest is payable to the account because the advance is not made until the middle of the following month. Financial interchange advances received in a fiscal year are repaid the following year when the financial interchange transfers occur. However, advances and repayments of advances are not shown on the table on page 23 because on an accrual basis of accounting only cash and a liability account are affected, not revenue and expenditures. Advances made during fiscal year 1988 totaled $2,423.5 million including interest. Financial interchange advances received for fiscal year 1987 were repaid to the U.S. Treasury on June 2, 1988, when the financial interchange transfers occurred. The total repayment was over $2,540.2 million, consisting of $2,312.6 million in principal and $227.6 million in interest.
Other revenue to the SSEB Account in fiscal year 1988 included payroll taxes amounting to $1,754.8 million, which was $69.9 million, or
*20 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
4.1 percent, more than in fiscal year 1987. Net income tax transfers, after a U.S. Treasury adjustment of $39 million for the 1986 reconciliation, were $4 million. Investment income totaled $43.5 million, about twice that in the year before. Total revenue to the account during the fiscal year was $4,419.2 million.
Expenditures from the SSEB Account totaled $4,177.4 million in fiscal year 1988. Benefit payments amounted to $3,915.5 million, 93.7 percent of total expenditures. Administrative expenditures during the year totaled $30.2 million. Accrued interest on financial interchange advances during fiscal year 1988 amounted to $231.7 million. As of September 30, 1988, the equity balance in the SSEB Account was $451.5 million, $242.8 million more than at the beginning of the year.
Dual Benefits Payments Account
The Dual Benefits Payments Account (which is on a cash basis of accounting as required by law) is a separate account for the payment of vested dual benefits from general revenue appropriations. The Board requested an appropriation of $368 million to fund full vested dual benefit payments for fiscal year 1988. However, under December 1987 budget legislation (Public Law 100-202), the appropriation was reduced by 4.26 percent so that only about $352.3 million was appropriated. As a result, vested dual benefits were reduced by 5.3 percent in the months April-September 1988. Payments amounted to $349 million in the fiscal year, net of a $1 million adjustment for prior years. The year-end balance of $3.4 million, including a small amount of uncashed check credits, was returned to the U.S. Treasury, as required by law.
Railroad Retirement Supplemental Account
Revenue to the Railroad Retirement Supplemental Account in fiscal year 1988 totaled $114.9 million, including $111.1 million in employer taxes and $3.8 million in interest on investments. Payroll taxes included a $1.8 million adjustment for taxes erroneously credited to the RR Account and SSEB Account in fiscal year 1987. Based on the corrected tax amounts, tax receipts were about $17.3 million less in fiscal year 1988, as declining employment more than offset higher tax rates. The supplemental annuity tax rate increased from 22 £ cents per work-hour in 1986 to 24 cents effective January 1, 1987, and increased to 26 cents effective January 1, 1988.
Supplemental account expenditures totaled $116.6 million, with $114.4 million in supplemental annuity payments and $2.2 million in administrative expenses. Benefit payments were $2.1 million less than in the prior year. The equity balance in the supplemental account declined by $1.7 million over the year to $49.6 million as of September 30, 1988.
A REVIEW OF OPERATIONS 21
Railroad Retirement Administration Fund
The equity balance of the Railroad Retirement (RR) Administration Fund was $4 million at the end of fiscal year 1988, $1.1 million more than at the start of the fiscal year. Funds appropriated to the Railroad Retirement Board for fiscal year 1988 were $0.6 million less than for fiscal year 1987. Of the $57.9 million appropriated to this account for fiscal year 1988, the RR Account contributed $26.5 million, the SSEB Account contributed $29.3 million and the RRS Account contributed $2.1 million towards salaries and expenses. Revenue for the fund during fiscal year 1988 included a $2.3 million reimbursement from the Health Care Financing Administration for administrative expenses associated with the Medicare Part B program. No General Services Administration (GSA) reimbursement is shown under revenue for fiscal year 1988 because this money ($1.5 million for fiscal year 1988) is now accounted for under a separate fund called "Real Property Operations.” Although no longer a part of the RR Administration Fund, the $1.5 million transferred by GSA to the Railroad Retirement Board was available for the operation, repair and rental of the headquarters building used by the Railroad Retirement Board in accordance with the provisions of the building delegation agreement.
Expenditures from the RR Administration Fund for salaries and expenses during fiscal year 1988 amounted to $59.1 million, $0.2 million less than the prior year. Of the total revenues of $9,052.8 million for the RR, SSEB, RRS and DBP Accounts, seven-tenths of one percent per dollar was used to administer the railroad retirement and survivor program.
22 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Railroad Retirement Account Statement of Operations and Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1988 1987
FINANCING SOURCES
Revenue -
Social Security Administration (SSA) reimbursement Payroll taxes Federal income tax transfers Railroad unemployment repayment taxes Interest on investments and others $844.3 $801.5 2,260.8 2,124.9 242.0 80.0 139.7 129.2 620.2 515.8
Interest on Railroad Unemployment
Insurance (RUI) Account loan 62.7 61.7
Total financing sources $4,169.7 $3,713.1
EXPENDITURES
Benefit payments Benefits paid on behalf of SSA Cash transferred for salaries and expenses Carriers' tax refunds - principal and interest $2,370.0 $2,198.6 844.3 798.1 27.2 28.6 62.9 47.3
Total expenditures $3,304.4 $3,072.6
Net results before adjustments Prior period adjustment $865.3 $640.5 LLO) Q6.51
NET RESULTS $864.3 $624.0
Adjusted equity balance at beginning of year Reduction of loan and interest receivables - RUI Account 7,189.3 6,722.0 (157.6) (156.7)
EQUITY BALANCE AT END OFYEAR $7,896,0 $7,189.3
A REVIEW OF OPERATIONS 23
Social Security Equivalent Benefit Account Statement of Operations and Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1988 1987
FINANCING SOURCES
Revenue -
Financial Interchange (FI) transfers -From Old-Age and Survivors Insurance and Disability Insurance To Federal Hospital Insurance - principal To Federal Hospital Insurance - interest Payroll taxes Federal income tax transfers Interest on investments and others $2,954.1 $2,678.8 (319.1) (340.9) (18.1) (51.6) 1,754.8 1,684.9 4.0 10.0 43.5 20.9
Total financing sources $4,419.2 $4,002.1
EXPENDITURES
Benefit payments Cash transferred for salaries and expenses Interest expense - FI $3,915.5 $3,835.5 30.2 28.9 231.7 330.9
Total expenditures $4,177.4 $4,195.3
Net results (deficit) before adjustments Prior period adjustments $241.8 ($193.2) 1.0 16.5
NET RESULTS (DEFICIT) $242.8 ($176.7)
Adjusted equity balance at beginning of year 208.7 385.4
EQUITY BALANCE AT END OFYEAR $451.5 $208.7
24 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Dual Benefits Payments Account Statement of Operations (In millions)
For the Fiscal Year Ended September 30, 1988 1987
FINANCING SOURCES Appropriations $352.3 $380.0
Returned to the general fund of the U.S. Treasury (3.4) (6.7)
Other - Uncashed checks - principal and interest .1 .1
Total financing sources $349.0 $373.4
EXPENDITURES Benefits $349.0 $373.4
Total expenditures $349.0 $373.4
NET RESULTS -0- -0-
A REVIEW OF OPERATIONS 25
Railroad Retirement Supplemental Account Statement of Operations and Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1988 1987
FINANCING SOURCES
Revenue - Supplemental taxes Interest on investments and others $111.1 3.8 $124.8 3.0
Total financing sources $114.9 $127.8
EXPENDITURES
Benefit payments Cash transferred for salaries and expenses $114.4 2.2 $116.5 2.1
Total expenditures $116.6 $118.6
NET RESULTS (DEFICIT) ($1.7) $9.2
Adjusted equity balance at beginning of year 51.3 42.1
EQUITY BALANCE AT END OFYEAR $49.6 $51.3
26 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Railroad Retirement Administration Fund Statement of Operations and Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1988 1987
FINANCING SOURCES
Appropriations $57.9 $58.5
Revenue - Health Care Financing Administration General Services Administration reimbursement1 2.3 -0- 2.3 1.2
Total financing sources $60.2 $62.0
EXPENDITURES
Salaries and expenses $59.1 $59.3
Total expenditures $59.1 $59.3
NET RESULTS $1.1 $2.7
Adjusted equity balance at beginning of year 2.9 0.2
EQUITY BALANCE AT END OF YEAR $4.0 $2.9
rrhese monies represent GSA’s reimbursement for the operation, repair and rental of the headquarters building used by the Railroad Retirement Board in accordance with the provisions of the building delegation agreement. Starting in fiscal year 1988, the GSA reimbursement money is accounted for under a separate fund called Real Property Operations.
A REVIEW OF OPERATIONS 27
Income Tax Transfers
Revenue from income taxes on social security equivalent railroad retirement benefits is transferred to the SSEB Account on a permanent basis. Revenue derived from taxing pre-October 1989 tier II benefits and the portion of tier I benefits in excess of social security equivalent benefits is transferred to the Railroad Retirement Account. The revenue derived from taxing pre-October 1988 vested dual benefits was also transferred to the RR Account; revenue from taxing vested dual benefits beginning October 1988 is transferred to the Dual Benefits Payments Account.
At the beginning of each quarter, income tax transfers are made from U.S. Treasury general funds to the SSEB, RR, and Dual Benefits Payments Accounts. These transfers are estimates of expected tax revenues for the quarter.
Adjustments are made later to reconcile the estimates for a taxable year with actual tax revenues for the year. The following table shows income tax transfers to the Accounts through 1988, including reconciliation adjustments for 1984, 1985, and 1986:
Federal income tax transfers by recipient account and benefit component, taxable years 1984-88 (In millions)
Taxable year Social Security Equivalent Benefit Account1 Railroad Retirement Account Dual Benefits Payments Account3
Tier I taxable like social security benefits Taxable like private pensions
Tier P and tier II Vested dual benefit
1984 $15 $53 $211 $55
1985 65 12 208 54
1986 69 285 51
1987 48 264 34
1988 41 253 20 $11
Adjustments4
1984 -7 -26 -104 -34
1985 -36 -7 -30 -1
1986 -39 -63 -5
Established October 1,1984; receives taxes on social security equivalent benefit (SSEB) portion of tier I.
3Non-SSEB portion of tier I, beginning 1986.
3Receives taxes on vested dual benefit component beginning October 1 1988.
4U.S. Treasury adjustments for reconciliations: 1984and 1985 reconciliations made in 1987; reconciliation for 1986 made in 1988.
28 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Investments of Railroad Retirement Funds
All railroad retirement funds not needed for immediate payment of benefits are invested in special issues of the U.S. Treasury. Currently, the Board can purchase two types of special issues, par value specials and market-based specials. A market-based special may be any marketable Treasury bill, note or bond, except that notes and bonds within six months of maturity are not currently available to the Board. The price is the same as the market price, but purchases and sales are made directly with the Treasury, so as not to affect the securities market. Par value specials mature on the first working day of the month following the month of issue and have a yield based on the average market yield of marketable Treasury notes with maturity dates at least three years away.
On September 30, 1988, the market value of the RR Account investments totaled $7,559,360,514. Of this amount, $4,344,749,000 consisted of 9.00 percent par value specials maturing October 3, 1988. The remaining $3,214,611,514 in the RR Account was invested in market-based notes and bonds maturing at dates varying from August 15, 1991, to August 15, 2003, and yields ranging from 8.72 percent to 12.52 percent. The book value of these securities at September 30, 1988, was $2,948,467,589, which reflects the cost of these securities adjusted for amortization of premiums and discounts. Such amortization is computed on the straight line method based upon the maturity of the related investments. The yield on all holdings of the RR Account for fiscal year 1988 was 9.32 percent.
On September 30, 1988, the SSEB Account investments totaled $644,484,000. The entire amount was invested in 9.00 percent par value specials maturing on October 3, 1988. The yield on all holdings of the SSEB Account for fiscal year 1988 was 8.54 percent.
On September 30, 1988, the RRS Account investments totaled $48,908,000. The entire amount was invested in 9.00 percent par value specials maturing on October 3, 1988. The yield on all holdings of the RRS Account for fiscal year 1988 was 8.58 percent.
A REVIEW OF OPERATIONS 29
Benefit Operations
Retirement and survivor benefits paid, including vested dual benefits and supplemental employee annuities, totaled $6,676 million in fiscal year 1988, $156 million more than in fiscal year 1987. The following table presents retirement and survivor benefit payments for fiscal years 1988 and 1987, by type of benefit, and the percent changes in payments between the two years:
Amount (in millions) Percent
Type ofbenefit Fiscal year Fiscal year 1988 1987 change
Retirement benefits:
Employee annuities
Regular $3,903.7 $3,781.7 + 3.2
Supplemental 113.9 115.7 -1.6
Spouse and divorced
spouse annuities 897.4 876.2 + 2.4
Total $4,915.0 $4,773.6 + 3.0
Survivor benefits:
Annuities $1,752.9 $1,737.0 + 0.9
Lump-sum benefits 7.9 9.7 -17.8
Total $1,760.9 $1,746.7 + 0.8
Grand total .. $6,675.9 $6,520.3 + 2.4
NOTE.-Detail may not add to total due to rounding.
Under the two-tier railroad retirement formulas, the tier I portion of a retirement or survivor annuity increases by the cost-of-living percentage applied to social security benefits, while the tier II portion increases by 32.5 percent of the social security percentage. Effective December 1986, tier I portions increased by 1.3 percent while tier II portions increased by 0.4 percent. Tier I increases of 4.2 percent and tier II increases of 1.4 percent were effective December 1987. Total tier I and tier II benefit payments were $184 million more in fiscal year 1988 than in the previous year. About $160 million of this difference was due to the cost-of-living increases provided in December 1986 and December 1987.
Monthly retirement and survivor benefits being paid numbered approximately 1,125,000 at the end of fiscal year 1988 , some 15,000 less than at the end of the prior year. Monthly beneficiaries on the rolls declined by about 14,000 over the year, from over 928,000 to under
30 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
915,000. The number of monthly benefits paid is always greater than the number of monthly beneficiaries on the rolls, since many annuitants receive more than one type of benefit. Although the second benefit is usually a supplemental employee annuity, some employees also receive a spouse or widow(er)’s annuity.
Regular employee annuities in payment status at fiscal year-end numbered nearly 408,000, some 6,000 less than at the end of the previous fiscal year. The number of normal age annuities (retirement at 65 or older) declined by 9,000 to 105,000. Annuities are also payable to employees age 60 with 30 years of railroad service (60/30 annuities); reductions are applied to the tier I portions of these annuities awarded before age 62, unless the employee attained age 60 and completed 30 years of service before July 1984. Full 60/30 annuities numbered 130,000 at the end of the fiscal year, a decrease of almost 2,000 from the prior fiscal year. Some 90,000 annuities were reduced for early retirement. These included 21,000 reduced 60/30 annuities, an increase of more than 5,000 over the year before. Nearly 70,000 reduced annuities were being paid to employees with less than 30 years of railroad service, about the same as the number paid the year before. Disability annuities declined by 1,000 to 82,000. Supplemental annuities dropped by nearly 1,000 to under 200,000. The total number of spouse and divorced spouse annuities being paid declined over the year from 222,000 to 220,000. More than 297,000 monthly survivor benefits were being paid at the end of fiscal year 1988, a decrease of 6,000 from the previous year.
Chart 1 on the next page compares benefits paid for fiscal year 1988 with those for fiscal year 1983, by type of beneficiary. Total fiscal-year payments rose by $635 million, or 11 percent, over the five years, primarily because of the increasing average level of benefits being paid. Cost-of-living increases during the five-year period cumulatively amounted to an average benefit increase of eight percent for all types of annuities. Also, annuities awarded in the five-year period were generally based on higher compensation and longer service than those that terminated. Charts 2 and 3 show the changes over the same period in numbers of beneficiaries and average annuity amounts, by type of beneficiary.
A REVIEW OF OPERATIONS 31
CHART 1
Amount of benefits paid, fiscal years 1983 and 1988
(Millions)
SHI 1983 I'.....'.I 1988
1 Includes $123.3 million in fiscal year 1983 and $113.9 million in fiscal year 1988 for supplemental annuities.
2 Includes divorced spouses.
32 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
CHART 2
Number of monthly beneficiaries.
llll'l 1983 Milj 1988
1 Includes divorced spouses.
A REVIEW OF OPERATIONS 33
CHARTS
Average annuity amount, September 30, 1983 and 1988
1983
1988
1 Without supplemental annuity.
2 Includes divorced spouses.
34 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Retirement
Regular employee annuities.--Nearly 21,300 regular annuities were awarded in fiscal year 1988, 700 fewer than in fiscal year 1987. Data by type of annuity awarded during the year are given in the following table:
Type of annuity Number Percent Average
Annuity amount Years of service Age at retirement
Age: Beginning at age 65 or over 3,000 14 $628 20.9 67.4
Unreduced, beginning at ages 60-64 5,000 24 1,339 38.4 62.4
Reduced, beginning at ages 60-64 8,500 40 923 28.3 61.6
Disability 4,800 22 1,089 25.2 54.4
Total 21,300 100 $1,017 28.9 60.9
Full-rate age annuities averaging $1,339 were awarded to 5,000 employees under age 65 at retirement having 30 or more years of railroad service. Railroad service for these 60/30 retirees averaged 38 years. Approximately 3,000 normal age annuities averaging $628 were awarded to employees age 65 or older at retirement, and railroad service averaged 21 years for these employees.
The tier I benefit amount of a reduced 60/30 retiree is reduced by 10 percent if he or she attained 60/30 eligibility between July 1, 1984, and December 31, 1985, or 20 percent if eligibility is attained after 1985. The tier I amount is recomputed when the employee reaches age 62 to reflect increases in national wage levels. Early retirement reductions for awards to employees ages 62-64 with less than 30 years of service equal 1/180 of the full annuity amount for each month the employee is under age 65 when the annuity begins. Reduced age annuities awarded during fiscal year 1988 numbered 8,500. These included 4,700 reduced 60/30 awards and 3,800 awards where the employee had less than 30 years of service. Average annuity amounts for the two groups were $1,239 and $531, respectively, while railroad service averaged 37 years and 17 years.
Disability annuities averaging $1,089 were awarded to 4,800 employees during the fiscal year. Disability awards are based either on total disability (precluding all employment) or on occupational disability (precluding employment only in the employee’s regular occupation). Of the year’s awards, 1,400 averaging $709 were for total disability and 3,300 averaging $1,249 were for occupational disability. Many employees who are disabled for all employment are initially awarded occupational disability annuities in order to expedite payment,
A REVIEW OF OPERATIONS 35
as medical standards for occupational disability are less stringent. Railroad service for disabled employees averaged 25 years.
Approximately three-fifths of all employees awarded disability annuities will meet the medical criteria for a disability freeze determination. The standards for freeze determinations follow social security law and are comparable to the criteria for granting total disability. Months within a disability freeze are excluded in computing an employee’s tier I annuity component, usually resulting in a higher benefit. Also, an employee may qualify for early Medicare coverage if granted a disability freeze.
Average ages at retirement for fiscal year 1988 awards ranged from 54.4 years for disability retirements to 67.4 years for normal age retirements. The average was 62.9 years for all age awards and 60.9 years for all awards-age and disability combined.
About 64 percent (13,600) of the employees who were awarded regular annuities in the fiscal year last worked for a railroad either in the calendar year their annuity began or in the preceding year. Such retirements are termed "immediate,” while those that occur two or more calendar years after the year of last railroad employment are called "deferred.” As a group, immediate retirees represent career railroad employees who worked in the industry until retirement. Of the year’s awards, 86 percent of all 60/30 retirements were immediate retirements, 90 percent for the full age and 81 percent for the reduced age 60/30’s. Thirty percent of normal age retirements were immediate, while only 18 percent of reduced age awards were immediate, excluding 60/30’s. Immediate retirements accounted for 76 percent of the disability awards.
Awards based on immediate retirement averaged $1,288, compared to an average of $538 for awards based on deferred retirement. Immediate retirees averaged 34 years of railroad service, considerably more than the average of 20 years for deferred retirees. About 28 percent of the immediate retirees had 40 or more years of service, while 77 percent had 30 or more years. About 84 percent had at least 25 years, the minimum service required for a supplemental annuity.
The nearly 408,000 retired employees on the Board’s rolls as of September 30, 1988, were receiving regular annuities averaging $806. Age annuities being paid included 105,000 averaging $637 to normal age retirees, 130,000 averaging $1,116 to full age 60/30 retirees, and 90,000 averaging $599 to reduced age retirees. The reduced age group included 10,000 60/30 annuities with 10 percent tier I reductions and 11,000 60/30 annuities with 20 percent tier I reductions; these annuities averaged $1,282 and $1,210, respectively. The 70,000 reduced annuities being paid to employees with less than 30 years of railroad service averaged $409. Disability annuities numbered 82,000 and averaged $759.
Some 299,000 (73 percent) of the annuitants on the rolls were immediate retirees whose annuities averaged $964. Annuities of the remaining 108,000 deferred retirees averaged $369. Although their
36 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
average railroad retirement annuities were much lower, a greater proportion of the deferred annuitants also received social security benefits-66 percent compared to 20 percent for the immediate retirees. Moreover, the average social security benefit paid to deferred retirees was higher than that of the immediate retirees. Combined railroad retirement and social security benefits paid to deferred retirees who were dual beneficiaries averaged $704, while combined benefits to immediate retirees averaged $897. The following table gives numbers of beneficiaries and average benefit amounts for employees on the rolls who were receiving social security benefits, and for those who were not, by type of retirement:
Dual-benefit status Total Type of retirement
Immediate Deferred
Receiving social security benefit: Number 130,000 58,800 71,200
Average monthly amount: Railroad retirement (regular) .. $387 $609 $205
Social security 404 288 499
Combined benefit $791 $897 $704
Not receiving social security benefit: Number 277,500 240,400 37,100
Average monthly amount $1,002 $1,051 $685
Regular employee annuities consist of as many as three components: tier I, tier II, and the vested dual benefit. Reductions for early retirement are made in each component in cases where the employee retired before age 65 with less than 30 years of railroad service, but are made only in the tier I component of reduced 60/30 annuities. The tier I component is based on the employee’s combined railroad and social security covered earnings. The gross amount is reduced by the amount of any social security benefit that the employee receives. The gross tier I amounts of employees being paid at the end of fiscal year 1988 averaged $687, about $36 more than the average at the end of the prior year. Tier 1 amounts of approximately 14,000 employees were completely offset by social security benefits. The remaining employees received net tier I amounts averaging $564.
The tier II component is based solely on railroad earnings. Tier II amounts being paid at the end of fiscal year 1988 averaged $223, about $18 more than at the end of the previous year. Employees are eligible for vested dual benefits if, based on their own earnings, they met certain vesting requirements and qualified for both railroad retirement and social security benefits at the end of 1974, or, in some cases, at the end of
A REVIEW OF OPERATIONS 37
an earlier year of last railroad service. About 149,000 retirees were receiving vested dual benefits averaging $133 at the end of the year. Of the various component combinations constituting the regular annuities being paid at year-end, average annuity amounts were greatest when the annuity consisted of tier I and tier II components without a vested dual benefit. These annuities numbered 251,000 and averaged $886.
Supplemental employee annuities.-Supplemental annuity awards numbered over 11,000 in fiscal year 1988, up 100 from fiscal year 1987. Of the awards, 8,400, or 76 percent, began concurrently with the employee’s regular annuity, while the remaining 2,600 were to employees already receiving a regular annuity. Supplemental annuity awards averaged nearly $42; 90 percent were at the maximum rate of $43. Supplemental annuities are reduced for any part of a private railroad pension attributable to employer contributions. About 2,200 supplemental annuities were entirely offset by private pensions during the fiscal year. About 100 awards were partially offset by pensions, including a few cases where the private pension was also reduced for the supplemental annuity. For a small number of awards, the supplemental annuity was paid in full and the pension alone was reduced.
Less than 200,000 retired employees were being paid supplemental annuities at the end of the 1988 fiscal year, about 1,000 fewer than one year earlier. The annuities included 157,000 averaging $42 paid under 1974 Act provisions and 43,000 averaging $66 paid under 1937 Act provisions. The 1974 Act eliminated a reduction in the employee’s regular annuity to compensate for a reduced scale of supplemental benefit amounts, so that net supplemental benefits under the two Acts are about the same. At the end of the year, 49 percent of all retired employees on the rolls were being paid a supplemental annuity.
Spouse and divorced spouse annuities.--Annuity awards to spouses and divorced spouses of retired employees numbered 17,800 in fiscal year 1988, nearly 300 less than in the previous year. Full-rate annuities awarded included 3,800 averaging $182 to spouses age 65 and older, 500 averaging $403 to spouses with minor or disabled children in their care, and 6,300 averaging $517 to spouses ages 60-64 where the employee had at least 30 years of railroad service. Age-reduced awards averaging $328 were made to 6,700 spouses ages 60-64, including 2,900 averaging $538 to spouses of 30-year employees whose tier I benefits were reduced. Some 400 divorced spouses were awarded benefits averaging $193.
When a 60/30 employee annuity is subject to a tier I age reduction, the reduction also affects the spouse annuity award. In these cases, the spouse tier I benefit is equal to one half of the employee’s reduced tier I amount and is recomputed when both the employee and spouse are age 62.
Spouses ages 62-64 of employees retiring with less than 30 years of railroad service have their annuities reduced by 1/144 for each month they were underage 65 when their annuity began, reductions being
38 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
made separately in each component of the annuity. This reduction applies also to the annuities of divorced spouses ages 62-64, regardless of the employee’s length of service.
Approximately 220,000 spouses and divorced spouses were receiving annuities averaging $342 as of September 30, 1988, a decrease of more than 2,000 from the previous fiscal year. Full-rate spouse annuities included 41,000 averaging $225 that had begun at age 65 or over, 2,000 averaging $388 that were based on having a minor or disabled child in care, and 98,000 averaging $481 that had begun at ages 60-64 where the employee had 30 years of railroad service. Age-reduced spouse annuities numbered 76,000 and averaged $228. Nearly 9,000 reduced annuities averaging $526 were being paid to spouses of 60/30 employees. The remaining 67,000 reduced annuities, to spouses of employees with less than 30 years of service, averaged $190. Over 2,000 divorced spouse annuities averaging $198 were being paid; 51 percent were reduced for early retirement. The table below presents numbers and average amounts of spouse and divorced spouse annuities awarded during the year as well as those being paid at the end of the year:
Type of annuity Awarded in fiscal year 1988 In current-payment status on September30,1988
Number Average amount Number Average amount
Spouse annuities:
Beginning at age 65 or over 3,800 $182 41,200 $225
With child in care 500 403 2,400 388
Unreduced, beginning at ages 60-64 . 6,300 517 97,900 481
Reduced rate 6,700 328 76,200 228
Total 17,300 $367 217,700 $343
Divorced spouse annuities 400 $193 2,300 $198
Grand total 17,800 $363 220,100 $342
NOTE.-Detail may not add to total due to rounding.
Like regular employee annuities, spouse annuities consist of up to three components. The tier I component equals one half of the employee’s tier I amount before any reduction for the employee’s social security benefit. The spouse tier I amount is reduced for receipt of a social security benefit and may be reduced for a public service pension. The tier I portion may also be reduced if the spouse receives a railroad
A REVIEW OF OPERATIONS 39
retirement employee annuity, but this reduction is usually restored through an increase in the spouse tier II amount. Divorced spouses receive only a tier I benefit.
The spouse tier II component equals 45 percent of the employee’s tier II amount. Railroad retirement amendments in 1981 changed the tier II computation for new awards and also precluded awards of spouse vested dual benefits for new entitlements.
There is a ceiling on the total amount of monthly benefits, excluding vested dual benefits, payable to an employee and spouse at the time the employee’s annuity begins. The ceiling is geared to the employee’s final creditable earnings, but it can never be less than $1,200. Any necessary reduction because of this maximum is first made in the spouse tier II component. If further reduction is required, the employee’s supplemental annuity and tier II amounts are reduced, in that order. Tier I amounts cannot be reduced for the railroad maximum. The highest possible maximum for awards in fiscal year 1988 was $2,585.
Of the 220,000 spouses and divorced spouses on the rolls at the end of the fiscal year, 166,000 were being paid tier I amounts averaging $265. Tier I amounts for the remaining spouses were completely offset by other benefits also due. The average of all tier I offsets, complete and partial, was $262. Spouse tier II amounts averaged $115. In 6,000 cases, the tier II component included an amount, averaging $225, which restored a reduction in the tier I amount for receipt of a railroad retirement employee annuity. In 13,000 cases, the tier II component was reduced an average of $59 for the railroad maximum. Vested dual benefits averaging $100 were being paid to 72,000 spouses, 9,000 fewer than at the end of the previous year.
Almost half of the spouses and divorced spouses on the rolls were also receiving social security benefits. About 88,000 of these 110,000 social security benefits were based on the spouse’s or divorced spouse’s own earnings, while the remainder were primarily based on the railroad employee’s wage record. Combined railroad retirement and social security benefits averaged $520, including $329 in social security benefits and $191 in railroad retirement benefits. Railroad retirement annuities to spouses and divorced spouses not receiving social security benefits averaged $492.
Families in which both the employee and spouse were on the rolls were paid combined railroad retirement benefits averaging $1,237 at the end of fiscal year 1988. In 59 percent of the families, the employee was receiving a supplemental annuity. For these families, the combined benefit averaged $1,486, reflecting the higher level of benefits paid to employees and spouses when the employee had 25 or more years of railroad service.
40 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Survivor
Monthly benefits.--Annuity awards to survivors of deceased railroad employees numbered nearly 17,000 during the 1988 fiscal year, 300 less than in the previous year. Awards to surviving spouses included 13,500 to aged widow(er)s, 400 to disabled widow(er)s, and 400 to widowed mothers and fathers (widows and widowers caring for children). Remarried and divorced widow(er)s received about 600 and 800 awards, respectively. Children’s awards included 900 to minor children (under age 18), 100 to 18-year-old full-time elementary or high school students, and 300 to disabled children ages 18 and older who were permanently disabled before age 22. A small number of awards were made to dependent parents.
Some 297,400 survivor annuities were being paid at the end of fiscal year 1988, including 3,000 temporarily paid as spouse or divorced spouse annuities pending conversion to a widow(er)’s annuity. The number of survivor annuities being paid dropped by 6,100 from the end of the prior fiscal year. Aged widow(er)s’ annuities, numbering 259,500, accounted for 87 percent of the survivor annuities being paid. Other widows and widowers on the rolls included 7,500 disabled widow(er)s, 2,400 mothers (fathers), 5,300 remarried widow(er)s, and 5,800 divorced widow(er)s. Most of the 100 survivor option annuitants, who are entitled based on laws in effect before August 1946, were also receiving aged widows’ annuities. Survivor annuities were also being paid to 16,900 children and over 100 dependent parents. The following table presents numbers and average amounts of survivor annuities, by type, for those awarded in the year and those being paid at the end of the year:
Type of annuity Awarded in fiscal year 1988 Number Average amount In current-payment status on September 30,1988
Number Average amount
Aged widow(er)s’ 13,500 $544 259,500 $499
Disabled widow(er)s’ 400 506 7,500 463
Widowed mothers’(fathers’) 400 478 2,400 499
Remarried widow(er)s’ 600 325 5,300 306
Divorced widow(er)s’ Children’s: 800 376 5,800 344
Under age 18 900 495 5,400 524
Student 100 476 200 563
Disabled 300 447 11,200 409
Parents’ (*) 409 100 399
Survivor option 100 90
Total 17,000 297,400
1 Fewer than 50.
NOTE.-Detail may not add to total due to rounding.
A REVIEW OF OPERATIONS 41
Survivor annuities, like regular employee and spouse annuities, consist of as many as three components: two tier amounts and, for widows and widowers only, a vested dual benefit. The tier I portion is computed according to social security formulas and is based on the deceased employee’s combined railroad and social security earnings. A tier I benefit reduction is made for the survivor’s receipt of a social security benefit. There may also be a tier I reduction if the survivor receives a railroad retirement employee annuity or public pension. Remarried and divorced widow(er)s receive a tier I benefit only. A dependent parent receives only a tier I amount if other family members are also receiving benefits or if the parent has remarried.
Survivor tier II amounts for awards since October 1986 are figured as percentages of an employee tier II benefit -50 percent for a widow(er), 15 percent for a child, and 35 percent for a parent. The total tier II amount for a survivor family is subject to a minimum of 35 percent and a maximum of 80 percent of the employee tier II benefit, and all tier II amounts are proportionately adjusted when either limit applies. Tier II amounts awarded under the old formula equal 30 percent of the survivor’s tier I amount before any reduction for other benefits. Widows and widowers are always guaranteed a total tier I and tier II amount at least as great as what they were paid as a spouse; an amount is added to the tier II component, if necessary, to bring the total up to the guaranteed amount. Legislation in 1981 precluded awards of vested dual benefits to widow(er)s for new entitlements.
Aged widows and widowers who begin receiving benefits at ages 60-64 have their tier I and tier II amounts reduced by 19/40 of one percent for each month they are under age 65 when the annuity begins, with a maximum reduction of 36 months, or about 17 percent. More than 108,000 aged widow(er)s on the rolls at the end of fiscal year 1988 were receiving reduced annuities, and the average number of reduction months was 30. The average tier I amount being paid aged widow(er)s was $409. In 23,000 cases, the tier I amount was wholly offset by reductions for other benefits. About 124,000 aged widow(er)s were receiving social security benefits averaging $354, and the average tier 1 offset for these benefits was $334. Tier II amounts averaged $120. Some 38,000 vested dual benefits averaging $51 were being paid to aged widow(er)s.
The tier I and tier II amounts of disabled widow(er)s’ annuities, which begin at ages 50-59, are reduced 281 percent for age. Tier I amounts being paid to disabled widow(er)s on the rolls at the end of the 1988 fiscal year averaged $376 (in some 500 cases, the tier I amount was wholly offset by reductions for other benefits). Over 2,100 disabled widow(er)s received social security benefits averaging $344. The average tier I offset for social security benefits was $323. Tier II amounts averaged $102, and the 1,300 vested dual benefits being paid averaged $69.
42 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
A widowed mother’s or father’s tier I amount generally equals 75 percent of the full amount payable to an aged widow before any reductions, similar to a social security mother’s or father’s benefit. Eligible children and grandchildren are paid this same tier I amount. However, if the sum of the tier I amounts of all members of a survivor family exceeds the social security family maximum, then the tier I amounts are proportionately reduced so that the total equals the maximum. A reduction for the family maximum usually occurs when the family includes three or more beneficiaries. Tier I amounts being paid as of the end of fiscal year 1988 averaged $467 for widowed mothers (fathers) and $384 for children. Fewer than 50 mothers (fathers) and about 2,500 children received social security benefits averaging $363 and $258, respectively. The corresponding average tier I offsets for these benefits were $302 and $242. Tier II amounts paid mothers (fathers) and children averaged, respectively, $118 and $73. Only a few widowed mothers received vested dual benefits and these averaged $87.
The average age of aged widows and widowers on the rolls was about 79 years at the end of the 1988 fiscal year. Disabled widow(er)s were much younger on the average, about 67 years, since this type of benefit begins at ages 50-59. Widowed mothers (fathers) averaged 49 years of age. A widowed mother’s annuity usually terminates when the youngest child attains age 18. Average ages of minor and disabled children on the rolls were 14 years and 52 years. Disabled children’s annuities begin at ages 18 and over and are usually payable for life.
Lump-sum benefits.--Two types of lump-sum benefits were payable to survivors of deceased railroad employees during fiscal year 1988, a lump-sum death benefit and a residual payment. A lump-sum death benefit is payable at the time of an employee’s death only if there are no survivors immediately eligible for monthly benefits. If a lump-sum benefit is not payable at the time of death, a deferred lump sum can be paid 12 months later if the total of monthly benefits paid the survivor during the year is less than the full lump-sum amount would have been. The deferred payment is the difference between the full lump-sum amount and monthly benefits actually paid. For survivors of employees who had at least 10 years of railroad service before 1975, the lump-sum death benefit is based on the employee’s earnings through 1974, with a maximum amount of approximately $1,200. If the employee completed 10 years of service after 1974, the lump-sum benefit is limited to $255, the maximum benefit payable under social security law.
Some 8,100 lump-sum death benefits were awarded during fiscal year 1988, including about 100 deferred payments. Benefits paid at the time of death, which averaged $840, included 1,200 to widow(er)s and 6,900 to other individuals who paid the funeral expenses, mostly adult children of the employee. The deferred lump-sum benefits averaged $842. If the employee completed 10 years of service after 1974, only the widow or widower is eligible for the lump-sum benefit.
A REVIEW OF OPERATIONS 43
Residual payments guarantee that railroad employees and their families will receive at least as much in benefits as the employee paid in railroad retirement taxes over the period 1937-74. A residual payment can only be made if no other benefits based at least in part on railroad service will be payable in the future. The payment, which includes an allowance in lieu of interest, is reduced for any retirement benefits that were paid on the basis of the employee’s railroad service, as well as for any survivor benefits already paid by either the Board or the Social Security Administration. A widow(er) or dependent parent can, before attaining age 60, elect to waive future rights to monthly benefits based on the employee’s railroad service in order to receive the residual payment.
More than 300 residual payments averaging $4,949 were awarded in the fiscal year. Widow(er)s and parents who elected to waive future monthly benefits received about 100 of these payments. The remaining awards were to widow(er)s of employees not insured for monthly benefits under the Railroad Retirement Act, other relatives, designated beneficiaries, or the employee’s estate.
Lump-Sum Tax Refunds
Employees who have at least 10 years of railroad service may be eligible for a dual retirement tax refund if they had concurrent railroad retirement and social security earnings within the period 1951-74, provided they are not entitled to a vested dual benefit based on their own earnings. The refund is equal to the social security taxes that the employee paid on the combined railroad and social security earnings in excess of the annual railroad retirement creditable earnings maximum. During the 1988 fiscal year, the Board paid about 4,700 tax refunds averaging $62. Most of the payments were to employees retiring during the year. Fewer than 100 refunds were made to survivors, mostly widows, of employees who died before receiving the refund. Employees entitled to dual retirement tax refunds for years after 1974 may claim them on their Federal income tax returns.
MEDICARE ENROLLMENTS
The Medicare program provides health insurance to persons age 65 and older, as well as to persons under age 65 who have been entitled to monthly benefits based on total disability for at least 24 months or who suffer from a chronic kidney disease requiring hemodialysis or transplant. In addition to the basic hospital insurance plan, which is financed through payroll taxes, there is an elective supplementary medical insurance plan for which monthly premiums are charged.
Eligible railroad retirement annuitants and social security beneficiaries whose benefits are payable by the Board are automatically
44 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
enrolled under both plans, but the medical insurance may be declined. Eligible nonretired persons must apply in order to obtain Medicare coverage. As of September 30, 1988, about 806,000 persons were enrolled in the hospital insurance plan. Nearly 790,000 (98 percent) of them were also enrolled for medical insurance.
Hospital Insurance
About 45,000 railroad retirement beneficiaries who attained age 65 or met the disability requirements for early Medicare were automatically enrolled for Medicare during fiscal year 1988. Railroad enrollees are paid benefits from the Federal Hospital Insurance Trust Fund, the same as persons covered under the social security system. However, benefits for hospital services in Canada are paid from the Railroad Retirement Account. Canadian payments totaled $78,000 during the fiscal year.
Medical Insurance
The Travelers Insurance Company, the carrier for supplementary medical insurance claims of railroad Medicare enrollees, made payments totaling $623 million in the 1988 fiscal year, $57 million more than in the preceding year. These payments included $573 million to claimants age 65 or older and $50 million to disabled persons under age 65. No payments were made during the year to persons under age 65 with chronic kidney disease.
The regular monthly premium for medical insurance during fiscal year 1988 was $17.90 for coverage through December 1987 and $24.80 thereafter. Persons who do not enroll during their first period of entitlement generally pay an additional 10 percent of the regular premium for each full year that they were eligible but did not enroll. Only about two percent of those enrolled for medical insurance at the end of the fiscal year were paying these higher premiums.
The Board generally withholds medical insurance premiums for annuitants from their benefit checks. At the end of the fiscal year, 755,000 annuitants were having their premiums withheld, State agencies were paying the premiums of 19,000 persons, and 16,000 people were paying premiums to the Board, either directly or through an intermediary. Premiums withheld or received by the Board are periodically transferred to the Federal Supplementary Medical Insurance Trust Fund.
A REVIEW OF OPERATIONS 45
RAILROAD UNEMPLOYMENT AND SICKNESS PROGRAM
Financial Operations
Railroad Unemployment Insurance Account
The equity balance in the Railroad Unemployment Insurance (RUI) Account at the end of fiscal year 1988, excluding the loans and interest due the RR Account, was $193.7 million, an increase of $53.2 million over the previous year. When the loan and interest balances due the RR Account at September 30, 1988, totaling $599.7 million are considered, the RUI Account had a deficit equity balance of $406 million at the end of the fiscal year.
Revenue during the fiscal year totaled $194.3 million, some $3 million less than in fiscal year 1987. Revenue in fiscal year 1988 included contributions of $181.5 million and interest income on investments and others, such as uncashed checks, of $12.8 million. The equity balance included a transfer from the RUI Administration Fund of $2.1 million.
Expenditures from the RUI Account during fiscal year 1988 totaled $155.9 million, some $91.7 million less than in fiscal year 1987. Unemployment and sickness benefit payments made up 59.5 percent of the total expenditures. Interest expense on the RR Account loans amounted to $62.7 million. Expenditures also included $0.5 million to partially fund the Board’s Office of Inspector General. In previous years, this amount had been included in administrative expenses.
In fiscal year 1988, the loan and interest payables were reduced by actual tax receipts of $157.6 million.
Railroad Unemployment Insurance Administration Fund
The equity balance in the RUI Administration Fund was $4 million at the end of fiscal year 1988, some $3.3 million less than at the start of the year. Revenue to the RUI Administration Fund totaled $12.3 million during fiscal year 1988, a decrease of $0.9 million from the previous fiscal year. By law, one-half percent of taxable compensation, $12.1 million, was allocated to the fund, a decrease of $0.4 million from the previous fiscal year. These contributions accounted for 98.4 percent of total revenue during the year.
Expenditures from the RUI Administration Fund during fiscal year 1988 totaled $13.5 million, a decrease of $1 million from fiscal year 1987. Some $2.1 million was returned to the RUI Account. This amount was the unobligated appropriation made in fiscal year 1987 to cover a potential shortfall.
46 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Railroad Unemployment Insurance Account Statement of Operations and Equity Balance (In millions)
For the Fiscal Year Ended September 30,
1988
1987
FINANCING SOURCES
Revenue -
Contributions
Interest on investments and others
Returned to the general fund of the U.S. Treasury1
Total financing sources
EXPENDITURES
Benefit payments - unemployment* 2
Benefit payments - sickness2 Interest expense - RR Account loan Cash transferred for salaries
and expenses
Total expenditures
NET RESULTS (DEFICIT)
Equity balance at beginning of year
Funds transferred from
RUI Administration
Reduction of loan and interest payable - RR Account
EQUITY BALANCE (DEFICIT)
AT END OF YEAR
$181.5 $187.7
12.8 10.1
-0- L51
$194,3 $197.3
$78.5 $124.2
14.2 61.7
62.7 61.7
.5 -0-
$155.9 $247.6
$38.4 ($50.3)
(604.1) (712.1)
2.1 1.6
157.6 156.7
($406.0) ($604.1)
Unobligated funds from the supplemental railroad unemployment benefit program originally appropriated by the Congress in fiscal year 1983 under Public Law 98-8.
2The large decrease in unemployment and sickness insurance benefits in fiscal year 1988 is primarily attributable to an actual decrease in benefit payments of about $47 million and the clearance of about $40 million in undistributed recoveries.
A REVIEW OF OPERATIONS 47
Railroad Unemployment Insurance Administration Fund Statement of Operations and Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1988 1987
FINANCING SOURCES Revenue - Contributions $12.1 $12.5
Interest on investments and others .2 .3
General Services Administration (GSA) reimbursement1 -0- A
Total financing sources $12.3 $13.2
EXPENDITURES Salaries and expenses $13.5 $14.2
Cash transferred to OIG administration fund -0- .3
Total expenditures $13.5 $14,5
NET RESULTS (DEFICIT) ($1.2) ($1.3)
Adjusted equity balance at Beginning of year Transferred to RUI Account 7.3 10.2
(2.1) LL6)
EQUITY BALANCE AT END OF YEAR $4.0 $7.3
1 These monies represent GSA’s reimbursement for the operation, repair and rental of the headquarters building used by the Railroad Retirement Board in accordance with the provisions of the building delegation agreement. Starting in fiscal year 1988, the GSA reimbursement money is accounted for under a separate fund called Real Property Operations.
48 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Railroad Unemployment Insurance Account Loans and Interest Due Railroad Retirement Account (In millions)
For the Fiscal Year Ended September 30, 1988 1987
Balance, beginning of fiscal year ..
$744,6 $865.9
Repayments:
Repayment tax - principal $111.3 $120.7
Repayment tax - interest 46.3 36.0
RUI Account cash - principal 34.6 17.9
RUI Account cash - interest 15.4 8.3
Total repayments $207.6 $182.9
Interest accrued,total $62.7 $61.7
Balance, end of fiscal year $599.7 $744.6
Loans Due the Railroad Retirement Account
At the end of fiscal year 1988, outstanding loans from the RR Account to the RU1 Account, including accrued interest, totaled $599.7 million. This amount consisted of $409.9 million in principal and $189.8 million in interest. The loan balance was $144.9 million less than the amount at the end of the prior fiscal year, mainly because of a repayment tax on railroad employers, and $266.2 million less than its fiscal year 1986 peak of $865.9 million. Collections from this tax are used only to repay loans made before October 1, 1985, and associated interest. The repayment tax rate was 4.7 percent in calendar year 1987 and 6 percent in 1988 on annual wages up to $7,000 per employee.
During fiscal year 1988, repayment taxes collected totaling $157.6 million were applied against the outstanding loans. Nearly $111.3 million of this amount was used to repay principal and the remaining $46.3 million was used to repay interest. An additional $50 million was paid from the RU1 Account to reduce the loan balance in fiscal year 1988. Of this amount $34.6 million went towards principal repayment while $15.4 million was applied to interest. Interest accruals on the loans during fiscal year 1988 totaled $62.7 million.
A REVIEW OF OPERATIONS 49
Benefit Operations
Unemployment and sickness benefits totaling $110.6 million were paid in the 1987-88 benefit year, $63.7 million less than in the prior year. Beneficiaries numbered 89,700 in comparison to the previous year’s total of 1 1 1,900. Approximately 6,400 employees received both unemployment and sickness benefits during the 1987-88 benefit year.
The number of unemployment and sickness benefit claimants decreased by 28 percent and 8 percent, respectively, compared to the 1986-87 benefit year. Total unemployment and sickness benefits also decreased, by 28 percent and 55 percent, respectively. The number of employees qualified for benefits under the Railroad Unemployment Insurance Act fell 6 percent to a total of 393,000. Virtually all unemployment and sickness benefit claimants were paid at the previous $25 maximum daily benefit rate in 1987-88. Benefit amounts for claims processed on or after November 20, 1987, were temporarily reduced 8.5 percent under the Gramm/Rudman/Hollings Act. In late December, however, benefit payments were restored to normal levels and payments of previously withheld amounts were made in the first week of January 1988. Federal budget legislation rescinded the reduction.
Unemployment
Some 54,400 railroad workers were paid $85.8 million in unemployment benefits during the 1987-88 benefit year. The number of claimants dropped by 20,800 from the prior year total of 75,200 while the benefit amount fell $32.8 million from the prior-year total of $118.6 million. The average number of compensable days per unemployment benefit claimant was 63 in benefit year 1987-88, compared to 68 in the previous year. Average railroad employment in benefit year 1987-88 was about 5 percent lower than in the previous benefit year, primarily as a result of railroad mergers and labor savings in operations. The unemployment benefit totals would have been higher, except that many of the displaced employees received severance payments equal to a year or more of normal pay, which disqualified them from receiving unemployment benefits for a like period. The number of railroad unemployment benefit claimants was lower in each month of the 1987-88 benefit year than in the corresponding month of the previous benefit year. The 1987-88 benefit year began with a mid-July count of 11,900 claimants. The count then rose, peaking at 26,600 in mid-February, and
NOTE.-Railroad unemployment and sickness benefits are paid on the basis of benefityears beginning July 1 and ending June 30 of the following year. Consequently, operational data in this "Benefit Operations section are generally presented for this time span, rather than fiscal years beginning October 1 and ending September 30.
50 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
CHART 4
Beneficiaries under the Railroad Unemployment Insurance Act, benefit years 1983-84 through 1987-88
A REVIEW OF OPERATIONS 51
dropped to the benefit-year low of 8,000 in mid-June 1988. For the 1987-88 benefit year as a whole, the weekly number of beneficiaries averaged 15,900 in comparison to an average of 24,000 in the previous benefit year.
The overall unemployment benefit claimant rate, measured in relation to numbers of employees qualified to receive benefits under the Railroad Unemployment Insurance Act during a particular time period, decreased to 14 per 100 qualified from the 18 per 100 level of the previous year. The last time the rate was this low was in benefit year 1976-77. The median age of all unemployment benefit claimants was 37 years, one year higher than in the previous benefit year.
Placement of Unemployed Railroaders
New jobs were found for 1,100 unemployed railroad workers during the 1987-88 benefit year as a result of cooperative placement activities by railroad management, railroad labor organizations, State employment service offices and the Railroad Retirement Board. More than two-thirds of the jobs were outside the railroad industry. Included in the total are placements of former Conrail, Milwaukee Road, and Rock Island employees who have preferential hiring rights. Placements were about 300 less than the previous benefit year’s total. There were 400 placements by Board offices and 700 by local railroad unemployment claims agents, who are primarily employed by the carriers. The placement service is operated under the auspices of the Board and is provided to railroad employees free of charge.
Sickness
Sickness benefits totaling $24.8 million were paid to 41,700 railroad workers in the 1987-88 benefit year. The number of beneficiaries dropped by 3,500 from the previous year’s total of 45,200, while the benefit amount fell $30.9 million from the previous year’s total of $55.7 million. The majority of the decrease in benefits paid during the year was due to the processing of large amounts of recoveries (some of which relate to prior years) which offset current payments.
For the sixth consecutive year, the utilization rate for employees receiving sickness benefits remained at 11 per 100 qualified employees. However, the 1987-88 benefit year was the 11th consecutive year in which the number of sickness benefit claimants declined, reflecting the continuing reduction in railroad employment levels and resultant drop in numbers of employees eligible for benefits. The average duration of sickness was 65 compensable days, the same as in the previous year. Among the most common causes of sickness were injuries other than fractures (affecting 27 percent of beneficiaries), fractures (8 percent), and mental disorders, including drug and alcohol addiction (8 percent). The
52 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
CHARTS
Unemployment and sickness beneficiaries by age, 1987-88
Unemployment
Sickness
A REVIEW OF OPERATIONS 53
Major unemployment and sickness benefit operations, benefit years 1987-88 and 1986-87
Benefit year 1987-88 Benefit year 1986-87
Item Total Unemployment Unemployment Sick- ness
Sick- ness Total
Applications 123,000 68,500 54,500 148,600 90,400 58,200
Claims 779,800 456,100 323,600 1,026,800 680,000 346,800
Beneficiaries1 89,700 54,400 41,700 111,900 75,200 45,200
Net amount of benefits $110,607,900 $85,774,400 $24,833,500 $174,308,800 $118,573,300 $55,735,500
Number of payments:
Normal 633,900 381,100 252,800 854,700 580,600 274,000
Extended 79,200 36,800 42,400 94,700 49,600 45,100
Total 713,100 417,800 295,200 949,400 630,245 319,100
Average amount per two-week registration period:
Normal $218.11 $208.73 $232.29 $214.41 $205.98 $232.32
Extended 229.09 220.67 236.10 226.43 217.64 235.77
Total 219.33 209.76 232.85 215.60 206.88 232.82
Benefits for both unemployment and sickness were paid to approximately 6,400 employees in benefit year 1987-88 and 8,400 employees in benefit year 1986-87. Detail does not add to total due to rounding.
median age of all sickness benefit claimants was 42 years, unchanged from the previous benefit year.
RAILROAD EMPLOYMENT
Average monthly employment in fiscal year 1988 dropped 4 percent to 313,000 from the 325,000 average of the previous year. This was the smallest decline in several years. Employment declined from month to month through February, then showed a slight upturn from March through June 1988. That level declined slightly through September. October 1987 had the highest level of employment with 324,000, and February 1988 had the low of 304,000.
In fiscal year 1988, two factors continued to contribute to the decline in employment. First, several large employers moved to reduce labor costs by offering separation allowances to their employees in specific job categories. This eliminated many railroad jobs during the year. Second,
54 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
a number of new regional and short-line railroads purchased both large and small sections of track from Class I railroads. In many cases, the number of covered employees hired to operate these lines was less than the number who had worked for the original carrier.
III. Legal Rulings
COURT REVIEW
Thirteen cases involving the Railroad Retirement Board were pending in the courts at the beginning of fiscal year 1988, and fifteen cases were opened during the fiscal year. Seventeen cases were pending at the end of the fiscal year. Two cases of significance are summarized in this report.
On March 25, 1988, the Court of Appeals for the District of Columbia in Railway Labor Executives’ Association v. The United States Railroad Retirement Board affirmed the Board’s previous decision with respect to the creditability of service performed by Canadian citizens and residents for United States railroads operating in Canada.
The Railroad Retirement Act and Railroad Unemployment Insurance Act have provided, since 1940, that an individual who is not a citizen or resident of the United States is not in covered employment when performing services outside the United States, if his or her employer is required, in whole or in part, to employ citizens or residents of the country where the service is performed. The Internal Revenue Service and the Board determined that the Canadian Immigration Act of 1976 and regulations which became effective on April 10, 1978, required employers in Canada to employ Canadian citizens and residents. As a result, the Board held that, effective January 1, 1983, service in Canada performed by Canadian citizens or residents was no longer covered under the Railroad Retirement Act and Railroad Unemployment Insurance Act.
The Court of Appeals affirmed the Board’s decision with respect to employees of all employers other than covered labor organizations, finding that the issue of these employees had not been adequately addressed. After further consideration, the Board held in an order issued July 21, 1988, that all Canadian service performed for United States labor organizations covered under the Railroad Retirement Act could not be credited toward benefits under the Acts if performed after December 31, 1982. Canadian service for labor organizations performed from April 10, 1978, through December 31, 1982, remains creditable under the same conditions as Canadian service for other employers, i.e., if the employee did not receive a railroad retirement payroll tax refund for this period. As neither the July 21, 1988, decision of the Board, nor the March 25, 1988, opinion of the Court of Appeals with respect to other employers, was contested, both decisions are now final.
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56 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
In the case of Darrell D. Arp v. Railroad Retirement Board, the United States Court of Appeals for the Eighth Circuit affirmed the three-member Board’s decision that the petitioner was not entitled to a disability annuity. One of the issues raised by the petitioner was that the Board violated his fifth amendment right to procedural due process because of the length of time taken in connection with his claim at the Board (from initial application to final Board decision). In response to this contention, the Court stated that it was impossible to evaluate the merits of the argument because the petitioner failed to raise the issue of delay before the hearing with the appeals referee or before his appeal to the Board. This case has given support to the contention that the Board has often made that issues raised for the first time before the Court (i.e., not raised before the referee or three-member Board) cannot be addressed by the Court.
ADMINISTRATIVE RULINGS
The following administrative rulings which were rendered during the 1988 fiscal year have been selected for inclusion in this report because of their special significance or interest.
Railroad Retirement Act
1. Legal Opinion L-88-72 concerned the application of the current connection provision of the Railroad Retirement Act. To meet the current connection requirement, an employee must have had at least 12 months of railroad service in the 30 months before retirement or death. If the employee does not qualify on this basis, but has 12 months in some other 30-month period, he or she may still meet the current connection requirement if the employee did not have a regular nonrailroad job after the 30-month period including 12 months of railroad service (other than employment for specified government agencies or self-employment in one’s own unincorporated business). In Legal Opinion L-88-72, the Deputy General Counsel of the Board held that employment for which the only remuneration was the provision of medical and life insurance coverage would not constitute regular employment which would break an employee’s current connection with the railroad industry.
2. Legal Opinions L-88-8, L-88-104, and L-88-113 dealt with the treatment of back pay awards under the Railroad Retirement Act. The Board’s regulations direct the crediting of back pay awards when paid, subject to the employee’s right to have the payments credited over the period actually earned. These opinions held that back pay awards which result from civil rights litigation or which are made by Public Law Boards are not back pay for purposes of these regulations but are pay for time lost and, accordingly, such payments should be credited when earned.
LEGAL RULINGS 57
3. Legal Opinions L-87-148 and L-88-4 concerned the treatment of defined contribution plans as supplemental pension plans under the Railroad Retirement Act. A determination that a plan is a supplemental pension plan provides for tax credits under the Railroad Retirement Tax Act to the extent that benefits from the plan reduce supplemental annuity payments under the Railroad Retirement Act.
In Legal Opinion L-87-148, a profit-sharing plan was held not to be a pension plan since the definition of a pension plan is generally thought to encompass only defined benefit plans (t.e., those in which the benefits are specified). In Legal Opinion L-88-4, it was held that a money purchase plan, which places an obligation on the employer to make contributions at the rates specified in the plan regardless of the level of profitability of the enterprise, constituted a supplemental pension plan.
4. In Legal Opinion L-87-143, the Deputy General Counsel ruled that the Board has authority to determine whether a period of disability under the Social Security Act exists with respect to disability annuitants under the Railroad Retirement Act. A determination by the Board that a period of disability exists results in the tier I component of the disability annuity being treated as a social security equivalent benefit for purposes of Federal income taxation, even though the Social Security Administration might reach a different result with respect to the period of disability determination.
5. A legal opinion issued April 22, 1988, concerned recovery of an overpayment. The railroad employee died in 1984 and a lump-sum death payment was paid to the payer of the employee’s burial expenses. In 1986, a child of the employee was found to be eligible for a disabled child’s annuity in the month in which the employee died; accordingly, the lump-sum death payment was erroneous.
In 1968, the Board approved a legal opinion stating that, although a literal reading of the Railroad Retirement Act would allow recovery from the benefits payable to any individual on the basis of the same earnings record as that on which erroneous payments have been made, that provision was intended to apply to a situation wherein a family benefited as a group from an erroneous payment to one of its members; it was not intended to embrace cases in which there are conflicting claimants for benefits who are not part of the same family group in which benefits are erroneously paid to a claimant.
In later legal opinions it was explained that the purpose of this "same family group” restriction was to limit recovery to those situations in which the person against whom recovery is to be made had reason to know of the erroneous payment and benefited from it. The basis for this limitation on recovery is chiefly that of fairness in that it may be inequitable to recover an overpayment from someone who had no knowledge of the creation of an overpayment.
The Deputy General Counsel ruled that the fairness element applied; the Deputy General Counsel ruled further that, although in some
58 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
sense the expenditure for the burial expenses of the employee may be said to benefit someone related to the employee (such as the child in this case), such benefit is too remote and vague to render that exception to the split-family group rule applicable. Accordingly, the Deputy General Counsel concluded that no recovery could be made from the child’s annuity in this case.
6. Legal Opinion L-88-68 was concerned with whether an illegitimate child of a railroad employee may be considered his child under Louisiana law for purposes of paying a child’s annuity under the Railroad Retirement Act. It was held that, since the employee did not formally acknowledge the child during his lifetime, in order to obtain such recognition after the employee’s death, a filiation proceeding would have to be brought on the child’s behalf under Article 209 of the Louisiana Civil Code within one year after the employee’s death.
7. Board regulations require that the Deputy General Counsel or his designee review each court order which attempts to award a portion of the employee’s annuity to the former spouse as property in a divorce. The parties are then notified whether, in the opinion of the reviewing official, the order meets the conditions which require the Board to make the deductions.
An attorney representing a former spouse received a letter from a member of the Board’s legal staff stating that the order in a particular case did not comply with the Board’s regulations. The attorney advised.that his client wished to initiate an administrative appeal of the determination that the Board would not comply with the order. Legal Opinion L-88-56 held that an opinion as to the effect of a court order upon annuities under the Act is not an appealable decision with respect to entitlement to benefits. Accordingly, neither the Act nor the Board’s regulations provided for administrative appeals.
8. In Legal Opinion L-88-103, the Deputy General Counsel held that periodic payments from a trust established to compensate an employee for time lost because of an on-the-job injury constituted pay for time lost. As part of a proposed personal injury settlement, the employer had agreed to set up a trust from which payments were to be made in months in which the employee lost time from work as the result of injuries. Those payments would continue until the employee had been credited with 240 months of service under the Railroad Retirement Act.
Coverage
1. Both the Railroad Retirement and Railroad Unemployment Insurance Acts provide that a company under common control with a railroad employer, which provides a service in connection with railroad transportation, is itself an employer covered under the Acts. Legal Opinion L-88-65 presented the question as to whether an electronic data processing firm which was a sister corporation of a railroad company met this definition of covered employer.
LEGAL RULINGS 59
The sister corporation staff basically consisted of data processing employees transferred from the railroad. The railroad contracted with the data processing company to train railroad employees to continue some of the functions formerly performed by the transferred employees. The data processing company also acquired from the railroad a right to license use by other railroads of a program developed by the railroad to control rail shipments. Approximately 75 percent of the data processing company’s business was associated with related railroad employers.
The Deputy General Counsel found the company to be under common control as a sister company of a railroad employer. In addition, he determined that the shipping programs served railroads by facilitating basic rail carrier functions. Because it met both requirements, the data processing company was determined to be an employer under the Acts.
2. The Railroad Retirement and Railroad Unemployment Insurance Acts provide that any rail carrier subject to the jurisdiction of the Interstate Commerce Commission is a covered employer under the Acts. Both Acts further provide that individuals performing service to an employer for compensation are covered employees for purposes of benefit entitlement. Legal Opinion L-88-89 concerned the question of whether a company classified by the Interstate Commerce Commission as a class III rail carrier could operate service without reporting employees covered under the Acts.
A class I rail carrier abandoned a 31 mile length of track. The line was acquired by a corporation formed by a major stockholder of the largest shipper on the line. The Interstate Commerce Commission exempted the new operator from various requirements of the Interstate Commerce Act, but characterized it as a class III shortline. After beginning operation, the carrier informed the Board that train service and clerical work would be provided by individuals on the payroll of the major shipper. The carrier reimbursed the shipper for the wages of these individuals. The shipper intended to continue reporting these individuals as covered by the Social Security Act.
The Deputy General Counsel held that for the time the individuals performed service to the railroad, they must be reported to the Board as employees of that carrier. The train service employees performed personal services on the property of the railroad which were an integral part of the railroad’s operations. The clerical employee performed a technical service integrated into the staff of the railroad employer. Consequently, the Deputy General Counsel ruled that, for purposes of benefit entitlement under the Acts, the railroad must report to the Board three part-time employees.
3. The Railroad Retirement and Railroad Unemployment Insurance Acts provide that, where a company which would otherwise be an employer conducts the principal part of its business outside the United States, only that part of the company’s business conducted inside the United States constitutes covered employer operations under the Acts.
60 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
In Legal Opinion L-88-98, a division of a Canadian rail carrier employer covered with respect to its operations in the United States became an independent company. While the new company conducted operations both in the United States and Canada, no part of the operation in the United States could be considered rail carrier service. Accordingly, the Deputy General Counsel held that the new company was not an employer covered by the Acts, and the employees of the company in the United States facilities were not covered employees for purposes of benefit entitlement under the Acts.
Other
1. The Railroad Unemployment Insurance Act provides that, where contributions due under that Act are not paid when due, there shall be added to the amount payable interest at the rate of one percent a month or a fraction thereof. Thus, a payment made one day late is subject to a one percent interest charge. In Legal Opinion L-88-90, the Deputy General Counsel held that the Chief Financial Officer of the Railroad Retirement Board has the authority to waive or reduce interest on late contributions where the delay in payment is due to reasonable cause, the interest payable is disproportionate to the length of delay, and the employer has made timely payments in the past.
2. Legal Opinion L-88-55 concerned a request by a railway labor organization for a mailing list of all retired railroad employees, formerly working in trades represented by the organization, who resided in a particular State. The organization stated it intended to use the list to keep in touch with the retired.
The Railroad Retirement Board is subject to provisions of the Freedom of Information Act, which generally requires Government agencies to release information unless the information falls within an exempted category. Among the exemptions is information which cannot be disclosed under another Federal law. One of these exemptions is contained in section 7(b)(3) of the Railroad Retirement Act which incorporates section 12(d) of the Railroad Unemployment Insurance Act and therefore prohibits from release information which personally identifies an employee unless disclosure is clearly in furtherance of that employee’s interest.
The opinion determined that the Board is prohibited from disclosing the names and addresses to the labor organization. Board records do not identify union affiliation, and therefore the Board would be required to produce a list of all employee annuitants residing in the State. As some of those included on the list might have interests opposed to those of the members of the labor organization, release of the list would not clearly be in furtherance of their interests.
LEGAL RULINGS 61
APPEALS
Any claimant for benefits under the Railroad Retirement or Railroad Unemployment Insurance Acts may appeal a determination he or she feels is not justified. This appeal must be filed within certain time frames. Appeals are heard and decided by the Bureau of Hearings and Appeals. An appellant who is dissatisfied with the decision on his or her appeal may further appeal the case to the three-member Board within a prescribed period of time.
Railroad Retirement Act
During fiscal year 1988, the Bureau of Hearings and Appeals rendered decisions in 961 appeals under the Railroad Retirement Act. The initial or reconsidered decision was sustained in 382 cases and reversed in 490 cases. Eighty-nine appeals were dismissed and 477 were pending at the end of the year.
One hundred twenty-six appeals were filed with the Board in fiscal year 1988, which, added to the 48 appeals carried over from the previous year, brought the total to be considered to 174. Of 113 decisions, 83 sustained previous rulings of the Bureau of Hearings and Appeals. Eighteen of the appeals were remanded to the Bureau of Retirement Claims for favorable action, four were remanded to the Bureau of Hearings and Appeals, and eight were dismissed for failure to file timely. At the end of the year, 61 appeals were pending before the Board.
Railroad Unemployment Insurance Act
During fiscal year 1988, the Bureau of Hearings and Appeals rendered decisions in 52 appeals under the Railroad Unemployment Insurance Act. The original decision was sustained in 37 cases and reversed in 11 cases. Four appeals were dismissed and 43 were pending at the end of the year.
Ten appeals were filed with the Board in fiscal year 1988, which, added to the three carried over from the previous year, brought the total to be considered to 13. The Board rendered decisions in six cases of appeals from the decision of the Bureau of Hearings and Appeals, affirming the decision in four of them, remanding one to the Bureau of Unemployment and Sickness Insurance for favorable action, and remanding one to the Bureau of Compensation and Certification. At the end of the year, seven appeals were pending before the Board.
Other Decisions
During fiscal year 1988, the Bureau of Hearings and Appeals rendered decisions in nine appeals under the Northeast Rail Service
62 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Act. The original decision was sustained in six cases and reversed in two cases. One appeal was dismissed. There were no appeals pending at the end of the year.
COVERED EMPLOYERS
During fiscal year 1988, coverage under the Railroad Retirement and Railroad Unemployment Insurance Acts was extended to 40 employers and terminated for 22 employers previously covered. Six of the terminations resulted from mergers or takeovers, with no actual change in coverage for employees. Another 10 companies were ruled not covered during the fiscal year. However, rail-related services performed by employees of one of these companies were ruled to be creditable to a covered employer.
As of the end of the 1988 fiscal year, 1,176 employers and service-creditable units were covered by the Acts. These employers and service-creditable units included railroad carriers, railroad associations, national labor organizations, railroad affiliates and miscellaneous organizations engaged in providing transportation service by rail (see appendix table 27).
For calendar year 1987, reports of service and compensation were submitted by 583 employers, of which 491 were operating carriers (railroads and switching and terminal companies). The corresponding numbers of employers and operating carriers in 1986 were 553 and 454, respectively. Among those employers who did not submit reports for 1987, some had no covered employees during the year, while others were subsidiary companies whose employees were included in reports of parent companies.
U.S. Railroad Retirement Board Consolidated Financial Operations
Fiscal Year 1988
Presented for the first time are the Railroad Retirement Board's Consolidated Statements of Financial Position, Operations, Changes in Equity Balances, and Cash Flow for the fiscal year ended September 30, 1988, with comparative figures for fiscal year 1987. The consolidated financial statements include not only the five railroad retirement and survivor program accounts and two railroad unemployment and sickness insurance program accounts, but also the Office of Inspector General Administration Fund and the Regional Rail Protective Account.
The following tables present the Railroad Retirement Board’s Consolidated Statements of Financial Position, Operations, Changes in Equity Balances, and Cash Flow (which reflect the elimination of all significant interfund balances and transactions) for the fiscal year ended September 30, 1988, with comparative figures for fiscal year 1987. Except for the Dual Benefits Payments Account (which is on a cash basis of accounting as required by law), these statements were prepared on an accrual basis of accounting in accordance with generally accepted government accounting principles and standards prescribed by the U.S. General Accounting Office and the Department of the Treasury. Fiscal year 1987 figures have been restated to conform to the presentation used for fiscal year 1988.
In fiscal year 1987, the actuarial projection of the difference between the present value of future financing sources and expenditures for the Railroad Retirement Account was included as a net actuarial liability in the Statements of Financial Position. For 1988, the U.S. General Accounting Office, responding to the Railroad Retirement Board’s request, suggested including the actuarial estimate as a note to the financial statements rather than as an actuarial liability. It was felt that the actuarial estimate of the difference between future financing sources and expenditures does not meet the general definition of a liability nor does it meet the specific criteria applied to annuity type plans for recognizing a liability for future benefit payments. The railroad retirement program does not meet these definitions because benefit payments in large part are funded from current revenues each
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64 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
year (rather than being funded in advance of retirement for each beneficiary) and are determined by a number of criteria that more closely resemble eligibility requirements, and have been periodically changed by the Congress. In the information provided in the notes to the financial statements, the Board’s office of the actuary projects that the Railroad Retirement Account balance will be sufficient to pay benefits until the year 2016. In addition, the 17th Actuarial Valuation stated that "barring a sudden drop in railroad employment, the system will not experience cash-flow problems during the next 20 years. The long-term stability of the system, however, is still questionable.” The Congress has established a Commission on Railroad Retirement Reform to conduct a comprehensive study of the issues pertaining to the long-term financing of the railroad retirement system and the system’s short-term and long-term solvency. The Commission is currently scheduled to issue its report by October 1, 1990.
During fiscal year 1988, loans and interest due the Railroad Retirement Account by the Railroad Unemployment Insurance Account decreased from $744.6 million to $599.7 million. This net decrease of $144.9 million is the result of the application of $157.6 million in repayment taxes and $50 million in direct cash repayments against the loan and interest balance and an increase in interest due on the loans of $62.7 million. Under Public Law 99-272, the railroad unemployment repayment tax was set to expire in 1990. At that point, the Railroad Unemployment Insurance Account would have still owed the Railroad Retirement Account about $580 million. To ensure repayment of the loan and place the railroad unemployment system on a more sound financial base, the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-647), enacted on November 10, 1988, extended the repayment tax indefinitely until the entire debt is repaid. With the current tax rate set at 4 percent, the entire loan (principal and interest) is expected to be repaid sometime in the late 1990’s.
During fiscal year 1988, the book value of the Board’s investments increased from $6,857,537,075 to $7,986,608,589. During the same period, the market value of these investments increased from $7,003,629,447 to $8,252,752,514. The main reason for the increase is that fund resources on a cash basis exceeded expenses by $1,162,744,787, of which $33,673,273 was held as cash and $1,129,071,514 invested in government securities.
CONSOLIDATED FINANCIAL OPERATIONS 65
U.S. Railroad Retirement Board Consolidated Statement of Financial Position (Unaudited)
As of September 30, 1988 1987
ASSETS
Fund balance with U.S. Treasury (Note 2) Accounts receivable - $167,034,497 $148,683,538
Taxes 180,056,138 193,704,138
FI 2,735,400,000 2,640,200,000
Interest 116,420,086 86,776,257
Benefit overpayments Allowances for bad debts 51,696 093 50,928,093
(2,883,736) (2,480,270)
Advances to employees 1,204 1,222
Inventory (Note 3) Investments (Note 4) 319,048 7,986,608,589 227,368 6,857,537,075
Furniture, fixtures and
equipment (Note 5) Other assets - 3,849,107 4,248,467
Accrued contributions receivable 45,837,000 47,654,235
Other -0- 6,400
Total assets $11,284,338,026 $10,027,486,523
LIABILITIES
Accounts payable -
FI $2,227,400,000 $2,124,100,000
FHI 326,700,000 340,000,000
SSA -0- 986,049
Benefits 593,721,238 556,234,649
Uncashed checks (Note 6) Vendors and suppliers 11,435,985 9,428,855 9,334,523 14,127,985
Accrued interest payable - .
FHI and FI 110,417,242 119,680,000
Accrued payroll and benefits 703,922 1,703,524
Accrued unfunded annual leave 3,151,915 3,103,477
Advances payable Other liabilities 1,819,992 1,851,197
343,346 893,181
Total liabilities $3,285,122,495 $3,172,014,585
EQUITY Trust fund -
Invested capital $4,168,155 $4,475,834
Unfunded annual leave (deficit) (3451,915) (3,103,477)
Unobligated balance (Note 7) 7,99^,927,404 6,854,194,250
Unobligated prior year balances (Note 8) 2,271,887 (94,669)
Total equity $7,999,215,531 $6,855,471,938
Total liabilities
and equity $11,284,338,026 $10,027,486,523
The accompanying notes are an integral part of these statements.
66 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
U.S. Railroad Retirement Board Consolidated Statement of Operations (Unaudited)
For the Fiscal Year Ended September 30, 1988 1987
FINANCING SOURCES
General fund appropriation for dual benefits Returned to the general fund of the U.S. Treasury (Note 9) Revenue - FI transfers - From OASI - DI To FHI - principal To FHI - interest SSA reimbursement GSA reimbursement Funds transferred from Conrail Payroll taxes Federal income tax transfers (Note 10) Railroad unemployment repayment taxes RUI contributions Interest on investments and others $352,323,000 (3,454,693) 2,954,082,398 (319,100,000) (18 060,000) 84^,665,087 -0- -0- 4,126,738,801 246,000,000 139,719,000 193,582,239 680,652,445 $380,000,000 (7,207,463) 2,678,846,320 (340,950,000) (51.635,000) 803,77^,496 1,578,900 230,000 3,934,587,612 90,000,000 129,199,000 200,213,424 550,125,231
Total financing sources $9,199,148,277 $8,368,765,520
EXPENDITURES
Benefit payments Benefits paid on behalf of SSA Salaries and expenses Interest expense - FI Carriers’ tax refunds - principal and interest $6,841,562,311 844,324,157 74,931,766 231,706,188 62,911,467 $6,711,490,557 798,083,352 74,845,104 330,834,331 47,316,580
Total expenditures $8,055,435,889 $7,962,569,924
NET RESULTS $1,143,712,388 $406,195,596
CONSOLIDATED FINANCIAL OPERATIONS 67
U.S. Railroad Retirement Board Consolidated Statement of Changes in Equity Balance (Unaudited)
For the Fiscal Year Ended September 30, 1988 1987
Equity balance, beginning of period $6,855,471,938 Net results of operations (Note 11) 1,143,743,593 Prior year adjustments -0- Equity balance, end of period $7,999,215,531 $6,447,447,593 407,606,981 417,364 $6,855,471,938
68 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
U.S. Railroad Retirement Board Consolidated Statement of Cash Flow (Unaudited)
For the Fiscal Year Ended September 30, 1988 1987
Fund balance with U.S. Treasury, beginning of period (Note 2) $148,683,538 $188,135,426
Sources of Funds: Appropriations $352,323,000 $380,000,000
Returned to the general fund of the U.S. Treasury (Note 9) (3,454.693) (7,207,463)
Revenue 8,850,279,970 7,995,972,983
Increase in payables 131,499,328 292,763,301
Increase in receivables and advances (132,267,713) (35,206,500)
Decrease in unemployment contribution receivables and other assets 1,823,635 4,128,541
Total sources of funds
$9,200,203,527 $8,630,450,862
Application of Funds:
Expenditures
Less: Expenses not requiring outlays
Increase in investments
Purchase of property
and equipment
Other - prior period adjustments
Total application of funds
Fund balance with U.S. Treasury, end of period (Note 2)
$8,055,322,925 $7,963,727,569
(3,745,597) (2 998,236)
1,129,071,514 70^,47^,218
1,203,726 1,114,563
-0- (417,364)
$9,181,852,568 $8,669,902,750
_$ 167,034,497 $148,683,538
CONSOLIDATED FINANCIAL OPERATIONS 69
Notes to Consolidated Financial Statements September 30,1988
1. Significant Accounting Policies
General.--The financial statements were prepared on the accrual basis of accounting and in accordance with the principles and standards prescribed by the U.S. General Accounting Office and the Department of the Treasury. Statements for the Dual Benefits Payments Account were, however, prepared on a cash basis of accounting as required by law.
Principles of Consolidation.—The consolidated financial statements include all funds maintained by the Railroad Retirement Board, after elimination of all significant interfund balances and transactions.
2. Fund Balance with Treasury
Cash not needed immediately for unemployment insurance benefits or operating expenses is held in the Federal Unemployment Trust Fund and invested by the Secretary of the Treasury. During fiscal year 1988, the Fund earned an average rate of return of 8.6 percent, of which the Railroad Retirement Board earned $13,035,228 as its pro rata share.
3. Inventory
Inventory consists of operating supplies and is valued on the moving average cost basis.
4. Investments
Trust fund balances not immediately required for the payment of annuities, supplemental annuities and death benefits may only be invested "in interest bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States” as provided in section 15(e) of the Railroad Retirement Act of 1974. Investment securities are stated at cost, adjusted for amortization of premiums and discounts. Such amortization is computed on the straight line method based upon the maturity of the related securities. Amortization is recognized as an adjustment to interest on investment.
70 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
The investment portfolio consisted of the following:
U.S. Treasury Securities: 9.0% Par Value Specials maturing on October 3,1988
Market Based Notes and Bonds, with maturities ranging from August 15, 1991, to August 15, 2003, and yields ranging from 8.72% to 12.52%
Total
Book Value
Market Value
$5,038,141,000
$5,038,141,000
2,948,467,589 3,214,611,514
$7,986,608,589 $8,252,752,514
5. Furniture, Fixtures and Equipment
These assets are stated at cost less accumulated depreciation/amortization of $2,755,840. Acquisitions are capitalized if the cost is $5,000 or more and the estimated service life is 2 years or greater. Depreciation/amortization is computed on the straight line method.
6. Accounts Payable - Uncashed Checks
Under current law, the amount of benefits represented by checks which remain uncashed for more than 6 months (1 year effective October 1, 1989) are credited (including interest thereon) to the accounts on which the checks were drawn. The Board’s deputy general counsel has determined that any credit received by the Board for uncashed checks must remain in a liability account until the Board determines that entitlement to the payment no longer exists.
7. Unobligated Balance
The balance includes $622,000 which is not available for obligation pursuant to Public Law 100-202.
8. Unobligated Prior Year Balances
The balance includes $1,290,000 which is not available for obligation pursuant to Public Laws 99-500, 99-501 and 100-71; the remaining amount of $981,887 is available only to liquidate valid obligations incurred in prior years.
9, Returned to the General Fund of the U.S. Treasury
This amount consists of unexpended appropriated general funds for dual benefits ($3,325,617) and uncashed checks - principal and interest ($129,076).
CONSOLIDATED FINANCIAL STATEMENTS 71
10. Federal Income Tax Transfers
The $246 million transferred in fiscal year 1988 is net of the $107 million adjustment made by the Department of Treasury to reflect actual collections during calendar year 1986.
11. Net Results
This amount does not include the expenditures of the Regional Rail Protective Account (60X0110) of $31,205 because this account has no equity balance. The amount is deducted from advances payable in the Statement of Financial Position.
12. Contingent Liabilities
The Railroad Retirement Board is involved in the following:
Linquist, et al, filed a petition for attorney fees arising from a successful class action suit challenging the excess earnings provisions of the Social Security Act and Railroad Retirement Act. The Court of Appeals awarded attorney fees arising in that forum on September 1, 1987. The estimated attorney fees would be $70,000. The Board’s share as a joint defendant would be $35,000.
The Union Pacific Corporation (holding company of the Union Pacific Railroad) paid taxes under the Railroad Retirement Tax Act as a result of a determination by the Internal Revenue Service that the holding company is an employer under the Act by performing services in connection with railroad transportation. The Union Pacific Corporation filed a claim for refund of the taxes it paid and the Board’s deputy general counsel believes that it is possible that the court may rule in favor of the Union Pacific Corporation. It is reasonably possible, therefore, that the Social Security Equivalent Benefit Account and the Railroad Retirement Account are contingently liable for an estimated total amount of $1 million.
There are six appeals of denials on disability, and one case concerning a request for a list of names and addresses of Railroad Retirement Act annuitants which was denied by the Railroad Retirement Board under the Freedom of Information Act. It is reasonably possible that the Railroad Retirement Account is contingently liable for an estimated amount of $308,000.
These liabilities have not been reflected in these financial statements because we believe sufficient assets exist to cover these potential liabilities and that, if settled, will have no material effect upon the financial position of the funds.
72 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
13. Restatements
Restatements have been made in the 1987 Financial Statements to conform to the presentation used in 1988.
14. Actuarial Projection
Additional information regarding the railroad retirement system is presented here for purposes of additional analysis. The actuarial estimate of the difference between future financing sources and expenditures does not meet the general definition of a liability, nor does it meet the specific criteria applied to annuity-type plans for recognizing a liability for future benefit payments. The railroad retirement system does not meet these definitions because (1) benefit payments are in large part funded from current revenues and (2) benefits have been periodically changed by the Congress.
Table A presents an actuarial analysis of the financial position of the Railroad Retirement Account. The figures in the table are an update of those appearing in the 17th Actuarial Valuation of the assets and liabilities under the Railroad Retirement Act as of December 31, 1986. In determining the present values in the 17th Actuarial Valuation, contributions and expenditures were estimated for a period of 75 years into the future. The estimates include contributions and expenditures related to future new entrants as well as to former and present railroad employees. The present values are computed on the basis of economic and demographic assumptions specified in the 17th Actuarial Valuation, and they are based on employment assumption B from the 17th Actuarial Valuation. Under employment assumption B, starting with an average employment of 317,000 in 1987, employment would decrease at an annual rate of 4.5% over the first 25 years of the valuation period and 2.25% over the next 25 years. Thereafter, average annual employment would remain level at 57,000. The actual decline in railroad employment through 1988 has been less than estimated; railroad employment in calendar year 1988 averaged 312,000 in comparison to an estimated 303,000 in employment assumption B.
The 17th Actuarial Valuation includes an illustration of funding requirements should the railroad retirement system have to satisfy the standards specified in the Employee Retirement Income Security Act (ERISA). ERISA allows several alternative funding methods, each of which is designed to fund benefits for employees before their retirement. Based on the funding method illustrated in the 17th Actuarial Valuation, there would be an "unfunded actuarial accrued liability” for former and present railroad employees in excess of $32 billion. Under ERISA provisions, the unfunded actuarial accrued liability would have to be liquidated by level annual payments over a 30-year period. The unfunded actuarial accrued liability is not an "actuarial deficiency” to be
CONSOLIDATED FINANCIAL STATEMENTS 73
compared with the actuarial deficiency in Table A; rather, it is an indication of the degree to which the financial position of the railroad retirement system is currently deficient in terms of funding benefits for present and former employees over their working lifetimes.
While the present value method provides information on the overall condition of the railroad retirement system projected over a 75-year period, it does not provide information about the level of the retirement account balance at any selected point in time. The pattern of income and expenditures, together with interest earned on account balances, determines the size of the account at any given point in time. Table B presents projected account balances and shows that there would be a sufficient account balance to make benefit payments until the year 2016.
74 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table A. Actuarial position of the Railroad Retirement Account as of September 30, 1988
Present values in millions of dollars
ACTUARIAL BALANCE September 30, 1988 $7,971 *
FINANCING SOURCES October 1, 1988, to
December 31,2060
Retirement taxes Income taxes on benefits Transfers from supplemental account Repayments from unemployment insurance account Available from Social Security Equivalent Benefit Account $36,056 236 661 153** 1,514
Total $38,620
EXPENDITURES October 1, 1988, to December 31,2060
Benefit payments Administrative expenses $50,538** 912
Total $51,450
DEFICIENCY OF EXPENDITURES OVER
FINANCING SOURCES (12,830) ***
ACTUARIAL DEFICIENCY AT
SEPTEMBER 30, 1988 ($4,859) *♦
* This balance differs from the actual trust fund balance shown in the Statement of Financial Position of $7,896 million because this actuarial balance is a projection of figures from the 17th Actuarial Valuation using December 31, 1986, as a base point.
** Under the terms of the Railroad Unemployment Insurance and Retirement Improvement Act of 1988, enacted on November 10, 1988, as part of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-647), amounts would change to the following (in millions of dollars):
Repayment from unemployment insurance account 600
Benefit payments 50,707
ACTUARIAL DEFICIENCY AT
SEPTEMBER 30, 1988 (4,581)
***This figure takes into account future new entrants as well as former and present railroad employees. The actuarial liabilities of $17,583 million shown in the fiscal year 1987 financial statements took into account only former and present railroad employees.
CONSOLIDATED FINANCIAL STATEMENTS 75
Table B. Projected balances of the Railroad Retirement and Social Security Equivalent Benefit Accounts combined (Dollar amounts in millions)
Calendar year End of year balance Calendar year End of year balance
1989 $8,532 2008 $10,867
1990 9,168 2009 10,020
1991 9,710 2010 8,966
1992 10,196 2011 7,677
1993 10,645 2012 6,143
1994 11,052 2013 4,384
1995 11,423 2014 2,423
1996 11,755 2015 229
1997 12,045 2016 (2,198)
1998 12,299 2020 (13,910)
1999 12,516 2025 (31,880)
2000 12,696 2030 (52,534)
2001 12,825 2035 (75,990)
2002 12,845 2040 (103,276)
2003 12,790 2045 (135,850)
2004 12,650 2050 (178,625)
2005 12,407 2055 (239,550)
2006 12,047 2060 (324,888)
2007 11,540
Annual Report Tables
INTRODUCTION
The tables in this section include data on operations under the Railroad Retirement and Railroad Unemployment Insurance Acts. The tables show financial operations, benefits and benefit payments, and service and compensation statistics. The tables on financial operations or status of accounts are on a cash basis except for tables 3, 5 and 6, which show data on an accrual basis for the Railroad Retirement Accounts and Railroad Unemployment Insurance Account.
While data for the Railroad Retirement Accounts and Railroad Unemployment Insurance Account financial operations and railroad retirement benefit operations follow the fiscal year, railroad unemployment and sickness benefits, by law, are based on a July-June benefit year. Therefore, railroad unemployment and sickness insurance benefit operations are generally presented on a benefit year basis, rather than on a fiscal year basis.
Data on unemployment and sickness benefits are based on claims actually paid in the years shown, regardless of the benefit year involved or when the unemployment or sickness was incurred.
July-September 1976 was a transition quarter. Fiscal years 1976 and earlier began July 1 and ended June 30 Beginning October 1976, fiscal years begin October 1 and end September 30.
Percentages are uniformly computed from unrounded figures even though rounded figures may appear in the tables; also detailed figures in the tables may not add to the totals shown because of rounding.
Some figures in the tables are preliminary estimates which are subject to revision when more information becomes available.
77
78 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
LIST OF TABLES
Table Page
1 .--Selected railroad data by month, fiscal year 1988 ................... 80
2 .-Beneficiaries and benefits paid under the Railroad Retirement and Railroad Unemployment Insurance Acts, by fiscal year, 1979-88............ 81
3 .-Status of the Railroad Retirement, Social Security Equivalent Benefit, Dual Benefits Payments, and Supplemental Accounts, by fiscal year, 1979-88 ............................................................... 82
4,-Status of the financial interchange between the Railroad Retirement Accounts and the Old-Age and Survivors, Disability, and Hospital Insurance Trust Funds, by fiscal year 1979-88, on a cash basis ........ 85
5 . -Status of the Railroad Unemployment Insurance Account, by fiscal year, 1984-88 ............................................................... 87
6 .-Status of the Railroad Unemployment Insurance Administration Fund, by fiscal year 1979-88 ...................................................... 89
7 .-Retirement, survivor, unemployment, and sickness benefits paid, by class of benefit and State of residence of beneficiary, fiscal year 1988 . 90
8 .-Number and average amount of retirement and survivor annuities awarded during year, by type of annuitant and fiscal year, 1979-88 .......... 91
9 .-Number and average amount of retirement and survivor annuities in current-payment status at end of year, by type of annuitant and fiscal year, 1979-88 ........................................................ 92
10 .-Retirement and survivor benefits paid, by type of benefit and fiscal year, 1979-88 ........................................................ 93
11 .-Lump-sum death benefits and residual payments awarded, fiscal years 1979-88 ........................................................ 94
12 .-Number and average amount of retirement and survivor annuities in current-payment status on September 30,1988, by type of annuity and status of annuitant under Social Security Act ............................... 95
13 .-Regular employee annuities in current-payment status on September 30, 1988, and awarded in fiscal year 1988, by type and amount.................... 97
14 .—Employee annuities in current-payment status on September 30,1988, by type and component ....................................................... 99
15 .-Regular employee annuities in current-payment status on September 30, 1988, and awarded in fiscal year 1988, by type of annuity and age of annuitant ........................................................... 100
16 .-Regular employee annuities in current-payment status on September 30, 1988, and awarded in fiscal year 1988, by type of annuity and years of creditable service ......................................................... 101
17 .-Spouse and divorced spouse annuities in current-payment status on September 30, 1988, and awarded in fiscal year 1988, by type and amount. 102
ANNUAL REPORT TABLES 79
Table Page
18 .-Spouse and divorced spouse annuities in current-payment status on September 30,1988, by type and component................................... 103
19 .-Spouse and divorced spouse annuities in current-payment status on
September 30,1988, and awarded in fiscal year 1988, by type and age of annuitant ...................................................... 104
20 .-Survivor annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and amount........................ 105
21 .--Survivor annuities in current-payment status on September 30,1988, by type and component...................................................... 107
22 .-Survivor annuities in current-payment status on September 30, 1988, and awarded in fiscal year 1988, by type and age of annuitant.............. 109
23 .-Unemployment and sickness beneficiaries and qualified employees, by age,benefityears 1987-88 ............................................... Ill
24 . -Principal administrative data for the unemployment and sickness benefit programs, benefit years 1984-88 ................................... 112
25 .-Principal administrative data for placements of unemployment claimants, benefityears 1984-88 ........................................... 113
26,-Number of employees and their compensation, for all employe and class I railroads, 1978-87 ............................................ 114
27 .-Employers and service-creditable units covered under the Railroad
Retirement and Railroad Unemployment Insurance Acts on September 30,1988, by class ........................................... 115
80 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 1.-Selected railroad data by month, fiscal year 1988
(In thousands)
Employment1 Beneficiaries Benefits paid
Month Unem- "
All em- Classi P^i RRA2 RUIA3 RRA4 RUIA
ployers railroads
1987 rvtnkor 324 272 15 927 28 $548,858 $11,259
OTctoberk....... oLj 14 925 29 542,667 9,505
December:::::::::::::: ioi io J* 924 33 542,273 7,977
1988
312 260 16 916 32 563,272 7,738
AP"' ............... 315 262 9 916 24 561 935 5,449
jS ::::::::::::::::::: ill sei » 913 20 564,100 4,519
T„iv 317 262 10 914 20 568,163 6,523
........................ 314 260 8 912 20 564 066 4,616 sepfiber.............315 ie? s 915 20 564,968 3,434
Total ......... 313 261 15 973 87 $6,675,927 $94,026
1 Refers to middle of month, and total is average of 12 monthly figures. Employment based on Interstate Commerce Commission (ICC) reports, adjusted to include estimates of employees not reported to ICC. 2 Number on monthly benefit rolls under Railroad Retirement Act at end ol month. Total is unduplicated number in year, excluding lump-sum recipients. 3 Number paid in month under Railroad Unemployment Insurance Act. Total is unduplicated number in year. * Includes vested dual benefits and supplemental employee annuities paid under Railroad Retirement Act.
ANNUAL REPORT TABLES 81
Table 2.-Beneficiaries and benefits paid under the Railroad Retirement and Railroad Unemployment Insurance Acts, by fiscal year, 1979-88 Fiscal year Total1 Retirement2 Survivor2 Unem- Sickness
ployment
BENEFICIARIES (in thousands)
1978-79 ............................ 1,251 737 370 101 79
1979-80 ............................ 1,254 731 367 118 76
1980-81 ............................ 1,250 726 363 125 76
1981-82 ............................ 1,276 722 359 166 74
1982-83 ............................ 1,268 715 357 180 63
1983-84 ............................ 1,182 705 351 103 56
1984-85 ............................ 1,143 694 343 85 50
1985-86 ............................ 1,130 684 339 89 50
1986-87 ............................ 1,097 675 333 72 45
1987-88 ............................ 1,062 666 328 52 41
BENEFITS PAID (in millions)3
1978-79 ......................... $4,416.8 $3,064.5 $1,210.4 $81.1 $60.8
1979-80 .......................... 4,942.9 3,389.8 1,340.8 148.5 63.7
1980-81 .......................... 5,544.1 3,779.9 1,506.7 200.2 57.3
1981-82 .......................... 6,071.6 4,097.9 1,627.6 290.2 55.9
1982-83 .......................... 6,474.6 4,354.2 1,686.9 4377.8 55.7
1983-84 .......................... 6,318.2 4,417.8 1,682.0 4176.5 41.8
1984-85 .......................... 6,426.3 4,539.3 1,711.6 4130.4 44.9
1985-86 .......................... 6,515.3 4,608.1 1,721.4 4133.1 52.7
1986-87 .......................... 6,699.6 4,773.6 1,746.7 119.2 60.0
1987-88 .......................... 6,770.0 4,915.0 1,760.9 79.8 514.2
1 Benefits paid include a small amount for hospital insurance benefits for services in Canada. 2 Retirement benefits include vested dual benefit and supplemental annuity payments. Survivor benefits include vested dual benefit payments. 3 Benefits paid for fiscal years beginning 1986-87 are not strictly comparable to those for prior years due to the change in accounting systems. 4 Includes supplemental extended unemployment benefits. 5Reflects processing of large amounts of recoveries.
NOTE.-Number of beneficiaries represents all individuals paid benefits in year. In total number for eachyear, beneficiaries are counted only once, even though they may have received more than one type of benefit. In 1987-88, nearly 13,000 individuals received both retirement and survivor benefits, 6,000 employees received both unemployment and sickness benefits, and 5,000 employees received benefits under both the Railroad Retirement Act and the Railroad Unemployment Insurance Act. These figures are partly estimated, and totals for earlier years are similarly adjusted.
82 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Balance at end of period6 <35 00 UO <35 CO <35 io CO o t^t-icdidcs’cdodcdaicd to IO COt>U3 iDO^cdr-i — & oc oc ez cn ac CN CN 02 <35 OC <35 X ’I (2t
Transferred to administration fund to cover expenditures (net)3 ............ 6,659 -1,220 -1 758
Funding for Office of Inspector General . ..... ’ ’ ... 487
Interest on RR loan ....................... (2) (2j ’'' (2j 61,656 62,704
Total .............................. $296,532 $179,285 $183,979 $247,610 $155,921
NET RESULTS FROM OPERATIONS ......................................... -$50,341 $38,370
BALANCE END OF PERIOD
Unexpended cash and invested principal . $4,763 $71,139 $103 230
Equity balance beginning of period................. .. ’ -K719 199 '1’99
Funds transferred irom RUl Administration Fund . . ... ’ ’ ’ ... j ’cqI 2 106
Reduction of loan and interest payable ............. \ f... ” ” ’ ’ 156 739 157 635
Equity balance end of period ......................................... -$604,123 -$406,012
See footnotes at end of table.
88 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 5.-Status of the Railroad Unemployment Insurance Account, by fiscal year, 1984-88
(In thousands) - Continued
_________Fiscal year _________________
Hem 1983-84 1984-85 1985-86 1986-87 1987-88
LOANS DUE RAILROAD RETIREMENT ACCOUNT4 hSs,"elved.::::::::::::::::::::::::::::::: « $171323
te RWXr:::::::::::::::::: 71350 :::::: 50:000
Due RR Account end of period... $676,423 $782,741 $865,907 $744,624 $599,623
1 Revenues include general revenue transfers of $9,909,000 in fiscal year 1983-84. $57,000 in fiscal year 1984-85 and $11,000 in fiscal year 1985-86, under section 17 oflhe RUI Act. Benefit payments include like amounts expended on supplemental extended unemployment benefits. ^Accrued interest expense on the RR loan is not shown for fiscal years 1983-84 through 1985-86 because those years are presented on a cash basis of accounting. Repayments of interest to the RR Account are not shown for years after 1985-86 because these amounts are included as an interest expense under the accrual basis of accounting. 3 Amounts appropriated from the Railroad Unemployment Insurance Account when estimated income of the administration fund during the fiscal year plus the available balance are less than estimated expenditures. No transfer was made for the 1987-88 fiscal year. Any amounts not expended are returned to the Account in the following year; in fiscal year 1987-88, $2,106,000 was returned to the Account. 4 Repayments include both principal and interest amounts. 5 Interest accruea in fiscal year 1983-84 includes $5,239,000 due the Railroad Retirement Account in September 1984 but not paid until October. , .
NOTE.- Figures for fiscalyears 1986-87 and 1987-88 are not comparable to those for prior years due to a change to accrual accounting.
ANNUAL REPORT TABLES 89
Table 6.-Status of the Railroad Unemployment Insurance Administration Fund, by fiscal year, 1979-88 (In thousands) Transfers from Transfers to
Railroad T. Railroad
Fiscal vear Taxes and Unemployment Administrative Unemployment Balance at
ribcajveu interest Insurance expenditures2 Insurance end of period
Account (net)1 Account
under sec. 1 l(dP
1Q7Q7Q $14 312 $10,414 $3,623 $6,260
U?«oI:::::::::::::::::: 1 aioi ::::: n:™ 1,909 5,935
1980-81 ........... 13,711 .. 13,622 336 5,5/9
IPLsi::::::::::::::::::: -nfit ::::: -li;^ :::::
1983-84 413,570 $6,659 413,829 ... Z’nn7
qk ........ 15 264 -1 220 15,914 .. 5,007
iMilt::::::::::::::::::: • tue -c™ 14,342 ... •s.sm
IK::::::::::::::::::: i?:*t:* -2,?ol • 4®
returned to the Account in the following year; in fiscal year 1987-88, $2,106,000 was returned to the Account. Expenditures for each year include encumbrances as of end of year. ^Transfers to the Railroad Unemployment Insurance Account are based on an accrual balance of $6,000,000 on September 30. includes $670,000 and $207 000 in fiscal years 1982-83 and 1983-84, respectively> revenues and used to administer the supplemental extended unemployment benefits program for certain workers with less than 10 years of service includes $189,000 and $395,000 in fiscal years 1985-8S and 1986-87 respectively, that the General Services Administration reimbursed the fund for specific administration expenses, following the transfer of the headquarters building to Board control. Fiscal year 1985-86 also includes $3,359,000 resulting from an accounting adjustment for prior years, ^he equity balance is $9,657,000 and includes receivables and other assets of $4,021,000 and payables of $2,306,000.
NOTE.-Figures for fiscal years 1986-87 and 1987-88 are not comparable to those for prior years due to a change to accrual accounting.
90 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 7.-Retirement, survivor, unemployment, and sickness benefits paid, by class of benefit and State of residence of beneficiary, fiscal year 1988 (In thousands)
State Total Retirement Survivor Unemployment Sickness
benefits benefits benefits benefits
Alabama $ 104,502 $72,906 $30,360 $1,015 $221
Alaska 853 529 307 13 4
Arizona 100,153 76,892 21,926 1,234 102
Arkansas 89,805 64,221 24,693 668 223
California 439,238 324,767 111,011 2,534 926
Colorado 87,875 62,419 23,705 1,594 157
Connecticut 38,465 28,277 9,830 238 121
Delaware 21,247 15,654 5,292 234 66
Washington, DC .. 12,557 9,050 3,367 107 33
Florida 328,584 251,226 76,240 817 301
Georgia 149,430 107,266 40,545 1,156 464
Hawaii 2,613 1,826 779 7 1
Idaho 49,241 38,566 9,991 574 110
Illinois 446,481 327,387 111,660 6,376 1,059
Indiana 184,532 131,734 48,667 3,648 484
Iowa 107,827 76,846 29,177 1,591 213
Kansas 155,373 114,522 38,962 1,617 271
Kentucky 156,716 107,096 45,767 3,330 523
Louisiana 93,178 65,266 26,659 1,029 223
Maine 39,226 28,153 9,217 1,765 92
Maryland 134,091 98,560 33,748 1,449 333
Massachusetts .... 74,897 53,213 20,108 1,458 118
Michigan 155,624 113,428 38,737 2,986 473
Minnesota 192,618 143,293 46,991 2,078 256
Mississippi 61,953 43,159 18,171 512 110
Missouri 227,174 164,963 59,660 2,164 388
Montana 65,456 51,355 13,179 744 177
Nebraska 105,693 78,490 25,119 1,766 318
Nevada 29,161 22,731 6,231 157 43
New Hampshire .. 12,574 8,694 3,619 245 16
New Jersey 144,734 104,885 38,694 786 368
New Mexico 50,787 37,251 12,240 1,202 95
New York 332,770 235,282 92,816 3,846 826
North Carolina ... 101,799 73,266 27,563 786 184
North Dakota .... 35,865 26,601 8,479 722 64
Ohio 388,156 276,209 104,552 6,595 801
Oklahoma 57,410 39,658 17,174 487 91
Oregon 101,048 77,993 22,130 772 153
Pennsylvania . . . . 584,160 425,627 150,974 6,457 1,102
Rhode Island 9,223 6,670 2,522 16 14
South Carolina ... 59,319 42,828 15,810 559 123
South Dakota .... 14,893 10,199 4,315 344 34
Tennessee 133,362 91,578 40,322 1,200 262
Texas 357,630 254,434 98,269 4,075 853
Utah 69,686 53,039 15,807 742 99
Vermont 13,705 9,323 4,187 184 10
Virginia Washington 204,842 147,865 54,843 1,682 452
121,501 93,035 27,525 703 237
West Virginia .... 123,644 86,273 34,103 2,936 331
Wisconsin 123,657 90,936 30,613 1,906 202
Wyoming 34,492 25,482 8,228 691 91
Outside the United States: Canada ‘27,970 17,534 10,348 9 1
Mexico Others 4,917 7,246 3,093 3,435 1,823 3,806 5
Total ‘$6,769,953 $4,914,984 $1,760,865 $79,810 $14,216
1 Includes $78,000 in hospital insurance benefits for services in Canada. NOTE.-Data partly estimated.
ANNUAL REPORT TABLES 91
Table 8.-Number and average amount of retirement and survivor annuities awarded during year, by type of annuitant and fiscal year, 1979-88
Type of beneficiary
Fiscal year TotaF -----Refred employees- g^ ^ed Divorced
Dis- Supple- divorced ow(er)s wid- JP’lr1®!8. dren wid- ow(er)s A£e ability mental spouses ow(er)s 1 at e s ow(er)s
NUMBER AWARDED 1978-79 ......... 83,538 19,639 5,847 14,691 22,323 16,963 564 799 2,697 ...........
1979-80 ......... 83,476 20,760 5,640 14,111 22,268 16,805 557 793 2,527 ..........
1980-81 ......... 82,854 21,173 5,721 14,282 21,346 16,984 530 665 2,142 ...........
1981-82 ......... 84,395 20,487 5,359 14,139 21,613 15,460 432 575 1,938 2,592 1,790
1982-83 ......... 81,260 20,213 4,593 13,881 20,231 16,792 372 601 1,881 1,402 1,275
1983-84 ......... 72,237 17,515 4,628 11,033 18,587 16,070 395 521 1,690 864 921
1984-85 ......... 68,334 16,489 4,375 10,452 18,286 14,796 375 459 1,443 751 896
1985-86 ......... 69,330 16,970 4,313 10,592 17,850 15,788 382 462 1,426 700 832
1986-87 ......... 68,224 16,897 5,045 10,961 18,040 13,642 369 404 1,328 670 858
1987-88 ......... 67,057 16,484 4,769 11,044 17,776 13,520 365 371 1,267 643 807
Cumulative 1937-88 . 4,085,577 1,256,769 415,735 349,343 917,769 814,481 13,041 80,415 219,608 7,645 7,372
AVERAGE AMOUNT
1978-79 ................... $658 $560 $41 $262 $365 $273 $364 $337 ... .......
1979-80 .................... 736 620 41 289 424 317 416 388 ... .......
1980-81 .................... 787 694 42 305 472 364 460 430 ... ......
1981-82 .................... 834 753 41 292 507 374 453 426 $206 $276
1982-83 .................... 856 819 42 301 521 390 414 396 220 263
1983-84 .................... 866 818 42 311 535 444 442 425 248 300
1984-85 .................... 888 873 41 321 560 475 471 451 280 321
1985-86 .................... 923 944 42 336 583 505 478 486 307 330
1986-87 .................... 967 1,014 42 354 521 494 476 460 313 350
1987-88 .................. 996 1,089 42 363 544 506 478 484 325 376
1 Includes annuities to parents. Fiscal year 1987-88 total includes 11 annuities to parents averaging $409. Cumulative total includes 3,399 annuities to parents.
NOTE .-Cumulative figures reflect adjustments not made in yearly data, but average amounts for each year include effects of changes in rates made by the end of the year.
92 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 9.-Number and average amount of retirement and survivor annuities in current payment status at end of'year, by type of annuitant and fiscal year, 1979-88
Type of beneficiary
Retired employees Spouses Dis-
Fiscal year Total --------------------- and abled Widowed .
Aw Sunnlp- divorced Aged w,ia\ mothers Remarried Divorcedn
g Disability mPPta] spouses widow(er)s2 ow(er)s (fathers)2 Children widow(er)s widow(er)s2
NUMBER AT END OF YEAR 1978-79 .... 1,204,719 358,629 96,818 182,736 233,611 292,073 6,770 5,406 28,478 ... ........
1979-80 .... 1,203,006 355,985 95,218 188,111 233,916 290,315 6,999 4,985 27,288 ... ........
1980-81 .... 1,202,364 354,608 93,743 193,436 233,977 288,606 7,249 4,478 26,094 ... ........
1981-82 .... 1,200,427 352,609 92,146 197,885 234,009 286,193 7,376 4,053 22,172 2,203 1,624
1982-83 .... 1,193,226 349,892 89,684 201,409 232,367 282,703 7,421 3,079 20,614 3,242 2,671
1983-84 .... 1,182,606 345,842 87,924 202,055 230,433 279,383 7,425 2,908 19,226 3,876 3,400
1984-85 .... 1,165,202 339,696 85,685 201,140 227,284 274,954 7,465 2,655 17,845 4,280 4,075
1985-86 .... 1,151,861 335,126 83,888 200,534 224,642 270,696 7,471 2,536 17,488 4,676 4,684
1986-87 .... 1,139,782 330,676 83,082 200,266 222,303 266,020 7,465 2,467 17,130 5,010 5,250
1987-88 .... 1,124,645 325,605 81,985 199,588 220,093 259,482 7,450 2,372 16,859 5,286 5,815
AVERAGE AMOUNT
1978-79 ................ $461 $419 $54 $210 $314 $265 $336 $300 ... ........
1979-80 ................. 526 477 53 236 361 302 392 349 ... ........
1980-81 ................. 579 525 52 251 401 331 442 393 ... ........
1981-82 ................. 641 576 51 280 430 354 475 399 $230 $282
1982-83 ................. 663 593 50 287 436 356 478 394 239 278
1983-84 ................. 682 609 49 293 441 415 478 400 250 291
1984-85 ................. 711 639 49 304 455 427 487 415 266 305
1985-86 ................. 745 674 48 316 472 439 498 427 280 317
1986-87 ................. 773 708 47 326 480 447 485 432 289 326
1987-88 ................. 818 759 47 342 499 463 499 447 306 344
includes annuities to parents. On September 30,1988. there were 110 parents’annuities in current-payment status averaging $399. 2 Figures include annuities temporarily being paid at spouse annuity rates, pending final adjudication of survivor annuities.
NOTE.-Data exclude survivor (option) annuities. On September 30,1988, there were 62 option annuities in current-payment status averaging $90.
ANNUAL REPORT TABLES 93
Table 10.-Retirement and survivor benefits paid, by type of benefit and fiscal year, 1979-88 (In millions)
Retirement
Total nii
retirement and Total Regular employee Supplemental Snouse
Fiscal year survivor1 annuities employee annuities2
and pensions annuities
1978-79 .................. $4,274.9 $3,064.5 $2,372.3 $120.1 $572.1
1979-80 ................... 4,730.6 3,389.8 2,633.3 121.6 634.9
1980-81 ................... 5,286.6 3,779.9 2,948.7 122.0 709.1
1981-82 ................... 5,725.6 4,097.9 3,218.6 123.5 755.9
1982-83 .................. 6,041.1 4,354.2 3,425.4 123.3 805.5
1983-84 .................... 6099.9 4417.8 3,480.5 122.1 815.2
1984-85:::::::::::::::: 6251.0 4:539.3 3:579.4 120.4 839.6
1985-86 ................... 6,329.5 4,608.1 3,645.8 114.8 847.4
1986-87 ......... 6 520.3 4,773.6 3,781.7 115.7 876.2
1987-88 ................... 6,675.9 4,915.0 3,903.7 113.9 897.4
Survivor
Annuities Lump-sum benefits
T- iq Aged Disabled mothers’ Remarried Divorced Chib ^deafi!*™ Residual
Total3 widow(er)s’ widow(er)s’ (fathers’) widow(er)s’ widow(er)s drens benefit payment
1978-79 ......... $1,194.8 $1,044.3 $20.6 $23.2 .... .... $105.7 $8.6 $7.0
1979-80 .......... 1,327.2 1,163.8 23.8 24.2 .... .... 114.4 8.3 5.3
1980-81 .......... 1,492.8 1,313.6 27.6 25.2 .... .... 125.5 8.5 5.3
1981-82 .......... 1,617.0 1,428.6 30.6 25.0 $6.1 $5.0 120.8 7.1 3.5
1982-83 .......... 1,676.1 1,488.9 32.0 24.2 9.3 9.1 111.7 7.4 3.4
1983-84 .......... 1,670.8 1,491.6 34.5 19.1 11.6 11.9 101.2 8.6 2.7
1984-85 .......... 1,702.4 1,517.5 38.6 18.4 14.0 15.6 97.5 7.1 2.2
1985-86 .......... 1,711.9 1,526.4 39.2 17.0 15.5 17.5 95.6 7.2 2.3
1986-87 .......... 1,737.0 1,544.6 40.5 16.5 17.6 20.7 96.5 7.6 2.1
1987-88 .......... 1,752.9 1,555.2 41.2 15.9 19.3 23.7 96.9 6.4 1.5
1 Includes a small amount of payments for hospital insurance benefits for services in Canada. 2 Beginning with fiscal year 1981-82, includes divorced spouse annuities. 3 Includes survivor (option) and parents’ annuities. NOTE.-Figures for fiscal years beginningl986-87 are not strictly comparable to those for prior years due to the change to a cash accounting system.
94 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 11.--Lump-sum death benefits and residual payments awarded, fiscal years 1979-88
Status of employee at death
Fiscal year Total Nonretired Retired
Number Average amount Number Average amount Number Average amount
LUMP-SUM DEATH BENEFITS1 1978-79 11,980 $781 1,155 $990 10,825 $758
1979-80 11,657 785 1,050 980 10,607 766
1980-81 11,842 788 991 967 10,851 771
1981-82 9,512 805 792 995 8,720 788
1982-83 9,908 811 718 994 9,190 796
1983-84 10,309 815 718 987 9,591 802
1984-85 8,823 827 663 966 8,160 815
1985-86 8,602 831 556 965 8,046 821
1986-87 8,954 833 602 943 8,352 825
1987-88 8,062 840 490 933 7,572 834
Cumulative 1947-88 .. 626,719 156,465 470,254
RESIDUAL PAYMENTS
1978-79 1,212 $6,237 946 $6,670 266 $4,699
1979-80 1,002 5,760 852 6,075 150 3,970
1980-81 971 6,050 859 6,353 112 3,726
1981-82 623 5,927 556 6,149 67 4,089
1982-83 632 5,752 573 5,866 59 4,648
1983-84 503 5,349 428 5,550 75 4,200
1984-85 444 5,240 399 5,357 45 4,203
1985-86 410 5,685 368 5,733 42 5,262
1986-87 386 5,356 345 5,507 41 4,088
1987-88 330 4,949 298 5,022 32 4,277
Cumulative 1938-88 .. 305,295 279,711 25,584
1 Excludes 15,515 deferred lump-sum benefits, of which 68 averaging $842 were awarded in
ANNUAL REPORT TABLES 95
Table 12.-Number and average amount of retirement and survivor annuities in current-payment status on September 30,1988, by type of annuity and status of annuitant under Social Security Act
Annuitants not receiving
Total Annuitants receiving social security benefits social security benefits
Type of annuity Average Average Average
Average Percent railroad social railroad
Number Number oftotal retirement security Number retirement
annuity’ annuity benefit annuity
EMPLOYEE ANNUITIES
All retirements*
Full age ............ 235,100 $902 66,000 28 $478 $403 169,100 $1,067
Reduced age ........... 90,500 599 42,900 47 265 418 47,600 901
Disability ........... ’82,000 759 21,100 26 354 378 60,800 900
Total ............... 407,600 $806 130,000 32 $387 $404 277,500 $1,002
Immediate retirements2:
Full age .............. 198,800 $998 40,100 20 $656 $290 158,700 $1,084
Reduced age ........... 38,500 934 9,300 24 504 305 29,200 1,071
Disability ............ 62,000 873 9,400 15 512 266 52,500 938
Total ............... 299,300 $964 58,800 20 $609 $288 240,400 $1,051
Deferred retirements2:
Full age .............. 36,400 $375 25,900 71 $203 $578 10,400 $800
Reduced age ........... 51,900 351 33,600 65 198 449 18,400 629
Disability ............ 20,000 408 11,700 59 227 468 8,300 665
Total ................ 108,300 $369 71,200 66 $205 $499 37,100 $685
See footnotes at end of table.
96 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 12.-Number and average amount of retirement and survivor annuities in current-payment status on September 30,1988, by type of annuity and status of annuitant under Social Security Act-Continued
. . Annuitants not receiving
Total Annuitants receiving social security benefits social security benefits
Type of annuity
Average Average Average Average
, railroad m k Percent railroad social railroad
Number retaire™ae°t Number oftotal retirement security Number retirement annuity annuity benefit annuity
SPOUSE AND DIVORCED
SPOUSE ANNUITIES Full-rate spouse ....... 141,600 $405 60,500 43 $232 $360 81,000 $534
Reduced-rate spouse.. 76,200 228 48,000 63 141 294 28 200 378
Divorced spouse .......... 2,300 198 1,400 59 113 232 1*000 320
Total................ 220,100 $342 109,900 50 $191 $329 110,200 $492
SURVIVOR ANNUITIES3 ngedk^do^er)? \..................... $499 124,400 48 $337 $354 132,200 $653
Disabled widow!er)s ..... 47,500 463 2,100 29 266 344 5 300 543
Widowed mothers ’
Remarried widow(er)s ’777. Hot) 306 3,200 61 182 332 2,’000 503
Divorced widow(er)s.. 5,800 344 3,800 66 242 355 2,000 541
Children: ’
Full^nS^ents',....... M°° 524 200 3 272 294 ’,200 53!
ages118-19 .............. 200 563 (5) 4 367 261 200 570
Disabled, over age 18 ... 11,200 409 2,300 21 232 255 8,900 455
Total ............... 294,200 $489 136,100 46 $327 $352 158,100 $628
1 Includes 46.300 annuities now payable as age annuities. 2 Retirement is considered immediate if the annuity began in the calendar year of nU!Pr^ee t t rallroad4sarv.lce or the following year; all others are considered deferred. 3 Excludes interim widows’, survivor (option),
and parents annuities. 4 Includes 4,400 annuities now payable as aged widow(er)s’ annuities. 5 Fewer than 50.
ANNUAL REPORT TABLES 97
Table 13.-Regular employee annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and amount
Amount of annuity Total Age annuities Disability annuities
Number Percent Number Percent Number Percent
IN CURRENT-PAYMENT STATUS
ON SEPTEMBER30,1988
All annuities
Immediate retirements1 . Deferred retirements ... 299,300 108,300 73 27 237,300 88,300 73 27 62,000 20,000 76 24
Total 407,600 100 325,600 100 282,000 100
Average annuity:
Immediate $964 $987 $873
Deferred 369 361 408
Total $806 $818 $759
Immediate retirements only1
Less than $200.00 1,700 1 1,300 1 500 1
8200 to 8299.99 3,500 1 2,600 1 1,000 2
8300 to 8399.99 6,800 2 4,900 2 1,800 3
8400 to 8499.99 11,300 4 8,300 3 3,000 5
8500 to 8599.99 17,300 6 12,200 5 5,100 8
8600 to 8699.99 26,000 9 19,600 8 6,300 10
8700 to 8799.99 27,100 9 20,400 9 6,700 11
8800 to 8899.99 27,800 9 20,300 9 7,500 12
8900 to 8999.99 28,100 9 20,400 9 7,700 12
81,000 to 81,099.99 33,200 11 24,800 10 8,400 14
81,100 to81,199.99 41,800 14 35,500 15 6,400 10
81,200 to 81,299.99 37,000 12 33,300 14 3,800 6
81,300 to 81,399.99 20,600 7 18,100 8 2,500 4
81,400 to 81,499.99 9,900 3 8,800 4 1,100 2
81,500 to 81,599.99 4,900 2 4,600 2 200 (*)
$1,600 and over 2,300 1 2,300 1 (3) (3)
Total 299,300 100 237,300 100 62,000 100
See footnotes at end of table.
98 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 13.-Regular employee annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and amount - Continued
Amount of annuity Total Age annuities Disability annuities
Number Percent Number Percent Number Percent
AWARDED IN FISCAL YEAR 1987-88 All annuities
Immediate retirements1 . Deferred retirements ... 13,600 64 7,700 36 9,900 60 6,600 40 3,600 1,100 76 24
Total 21,300 100 16,500 100 4,800 100
Average annuity: Immediate Deferred $1,288 538 $1,312 518 $1,225 652
Total $1,017 $996 $1,089
Immediate retirements only1
Less than $400.00 200 1 200 2 (3) (3)
11400 to S4 99.99 <3) (3) (3) (3) (3) (3)
S500 to S599.99 100 (3) 100 1 (3) (3)
11600 to 11699.99 100 1 100 1 (3) 1
11700 to 11799.99 200 1 100 1 100 2
11800 to 11899.99 300 3 200 2 100 3
11900 to 11999.99 600 4 300 3 300 7
111,000 to 1 11,099.99 .... 900 6 500 5 400 11
111,100 to! 11,199.99 .... 1,400 11 900 9 500 15
111,200 to! 11,299.99 .... 2,400 18 1,800 18 700 19
111,300 to! 11,399.99 .... 2,700 20 2,000 20 800 22
111,400 to 11,499.99 .... 2,000 15 1,400 14 600 15
111,500 to! 11,599.99 .... 1,700 13 1,500 16 200 4
$1,600 and over 900 7 900 9 (3) (3)
Total .. 13,600 100 9,900 100 3,600 100
1 Retirement is considered immediate if the annuity began in the calendar year of employee’s last railroad service or in the following year; all others are considered deferred. 2 Includes 46,300 annuities now payable as age annuities. 3 Fewer than 50 or less than 0.5 percent.
ANNUAL REPORT TABLES 99
Table 14.-Employee annuities in current-payment status on September 30, 1988, by type and by component
Component All annuities Age annuities Disability annuities
Number Average Number Average Number Average
Total, regular1 407,600 $806 325,600 $818 282,000 $759
Non-tiered 2,200 (3) 1,900 (3) 300 (3)
Tierl.net 391,800 564 312,200 563 79,600 567
Gross Offset for social 405,400 687 323,700 696 81,700 650
security benefit 129,500 397 108,500 402 21,000 374
Tier II, total 385,600 223 309,000 234 76,600 177
1981 amendments 134,100 341 107,200 352 26,900 297
Prior law Service and compensa- 251,500 159 201,700 171 49,700 113
tion before 1975 Addition for service 251,500 132 201,700 141 49,700 94
before 1975 Service and compensa- 103,400 31 86,800 32 16,600 26
tion after 1974 Vested dual railroad retirement-social 103,400 35 86,800 37 16,600 29
security benefit Addition under minimum 149,200 133 125,700 135 23,500 122
guaranties4 1,600 255 200 187 1,400 263
Reduction for age 90,500 86 90,500 86
Supplemental annuity .... 199,600 47 174,800 47 24,800 42
Social security benefit 130,000 404 108,900 409 21,100 378
1 Excludes supplemental annuities and social security benefits.
2 Includes 46,300 annuities now payable as age annuities.
3 Data not available.
4 Includes special social security minimum guaranty and 1974 Act "grandfather clause” assuring benefits, before reduction for social security benefits, at least equal to amounts payable under provisions in effect in December 1974.
NOTE.- Detail will not produce overall average annuity amount as deductions for work and other adjustments are not reflected. Component data based on cases where record is available.
100 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 15.-Regular employee annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type of annuity and age of annuitant
Age of annuitant1 Total Age annuities Disability annuities
Number Percent Number Percent Numbe •r Percent
IN CURRENT PA YMENT STATUS
ON SEPTEMBER 30, 1988
Under 50 2,900 1 2,900 4
50 to 54 3^00 1 3^600 4
55 to 59 9,800 2 9,800 12
60 to 64 63,600 16 44,200 14 19,300 24
65 to 69 93,500 23 77,200 24 16,300 20
70 to 74 84,800 21 72,600 22 12,300 15
75 to 79 62,600 15 53,600 16 9,000 11
80 to 84 46,900 12 41,700 13 5,200 6
85 to 89 27,200 7 24,800 8 2,500 3
90 and older 12,600 3 11,500 4 1,100 1
Total 407,600 100 325,600 100 282,000 100
Average age .... 72.6 73.9 67.3
AWARDED IN FISCAL YEAR 1987-88
Under 50 1,100 5 1 100 22
50 to 54 900 4 900 18
55 to 59 1,900 9 .... 1,900 40
60 to 61 6,800 32 6,100 37 700 15
62 to 64 7,600 36 7,400 45 200 4
60 to 64, total ... 14,400 68 13,500 82 900 19
65 to 69 2,500 12 2,500 15
70 to 74 400 2 400 2
75 and older 100 (3) 100 1
Total 21,300 100 16,500 100 4,800 100
Average age .... 60.9 62.9 54.4
1 Age at end of fiscal year 1987-88 for annuities in current-payment status at end of year, and age on beginning date for annuities awarded in year. 2 Includes 46,300 annuities now payable as age annuities. 3 Less than 0.5 percent.
ANNUAL REPORT TABLES 101
Table 16.-Regular employee annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type of annuity and years of creditable service
Age annuities Reduced Disability annuities
Y ears of creditable service Total Full rate
Beginning at age 65 or older Beginning before age 65
IN CURRENT-PAYMENT STATUS ON SEPTEMBER 30,1988 10 to 14 ’50,400 14,300 23,600 12,500
15tol9 36,400 11,200 15,600 9,600
20 to 24 37,600 10,200 11,300 16,100
25 to 29 40,900 14,200 10,800 15,900
Less than 30 years, total ... 165,200 49,900 61,300 54,000
30 47,200 19,100 16,100 4,900 7,100
31 to 34 75,800 19,700 36,400 7,900 11,900
35 to 39 83,900 12,800 52,900 10,400 7,800
40 or more 35,500 3,900 24,500 5,900 1,100
30 or more years, total 242,400 55,400 129,800 29,200 27,900
Grand total 407,600 105,300 129,800 90,500 282,000
Average years of service ... 28.5 26.8 35.8 23.6 24.8
AWARDED IN FISCAL YEAR 1988 10 to 14 3,800 1,200 1,800 800
15tol9 2,200 600 900 600
20 to 24 1,800 300 600 900
25 to 29 1,400 200 500 700
Less than 30 years, total ... 9,300 2,400 3,800 3,000
30 to 34 3,200 100 1,100 1,200 800
35 to 39 4,700 100 1,800 2,000 700
40 or more 4,100 300 2,100 1,500 200
30 or more years, total 12,000 600 5,000 4,700 1,700
Grand total 21,300 3,000 5,000 8,500 4,800
Average years of service ... 28.9 20.9 38.4 28.3 25.2
1 Includes a small number of annuities based on less than 10 years of service, awarded before 1951.
2 Includes 46,300 annuities now payable as age annuities.
102 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 17.-Spouse and divorced spouse annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and amount
Amount of annuity Total Full-rate annuities Reduced annuities
Number Percent Number Percent Number Percent
IN CURRENT-PAYMENT STATUS ON SEPTEMBER 30,1988 Less than $100 32,600 15 13,100 9 19,400 25
! 1100 to! 1149.99 17,400 8 8,300 6 9,100 12
< 1150 to: 1199.99 17,400 8 8,100 6 9,300 12
< 1200 to! 1249.99 15,900 7 7,700 5 8,200 11
< >250 to! 1299.99 16,200 7 7,900 6 8,200 11
< 1300 to! 1349.99 14,900 7 7,100 5 7,900 10
< 1350 to! 1399.99 12,500 6 7,300 5 5,200 7
< 1400 to! 1449.99 10,900 5 8,900 6 2,000 3
< 1450 to! 1499.99 15,100 7 14,000 10 1,100 1
< 1500 to 1 1549.99 23,700 11 22,000 15 1,600 2
< >550 to! 1599.99 23,400 11 21,000 15 2,400 3
< 1600 to! 1649.99 11,300 5 9,200 6 2,100 3
< 1650 to! 1699.99 5,300 2 4,700 3 600 1
1700 to: 1749.99 2,700 1 2,700 2 (»)
< 1750 and over 800 (*) 800 1 I1) (*)
Total 220,100 100 142,700 100 77,400 100
Average annuity ... $342 $403 $228
AWARDED IN FISCAL YEAR 1988
Less than $100 3,800 21 2,000 19 1,800 25
8100 to 5 1149.99 1,100 6 800 7 300 4
8150 to 5 1199.99 800 4 500 5 300 4
8200 to! 1249.99 800 5 500 4 400 5
8250 to! 1299.99 1,100 6 500 5 600 9
8300 to: 1349.99 1,000 5 400 4 600 8
8350 to! 1399.99 800 4 400 4 300 5
{>400 to! >449.99 600 3 400 4 200 3
8450 to! 499.99 900 5 600 6 300 4
8500 to! 549.99 1,700 10 1,200 11 500 8
8550 to! 1599.99 2,000 11 1,200 11 800 12
8600 to J 5649.99 1,500 8 800 7 700 11
8650 to 5 1699.99 900 5 700 7 200 3
8700 to! 1749.99 700 4 700 6 (*) I1)
$750 and over 200 1 200 2
Total 17,800 100 10,800 100 6,900 100
Average annuity ... $363 $388 $324
1 Fewer than 50 or less than 0.5 percent.
ANNUAL REPORT TABLES 103
Table 18.-Spouse and divorced spouse annuities in current-payment status on September 30,1988, by type and component
Component Total Full-rate annuities Reduced annuities
Number Average Number Average Number Average
Total, railroad 220,100 $342 *142,700 $403 277,400 $228
Non-tiered cases 2,200 (1 * 3) 2,100 (3) 100 (3)
Tierl.net4 165,700 265 109,800 307 55,900 182
Gross 217,900 352 140,600 370 77,300 319
Offset for social security or railroad retirement benefits 115,500 262 64,200 285 51,300 233
Tier II total5 206,800 115 136,500 136 70,200 72
1981 law 97,800 141 67,100 159 30,800 103
Prior law 108,900 91 69,500 115 39,500 49
Vested dual railroad retirement-social security benefit 72,000 100 40,400 120 31,600 75
Total reduction for age6 . 71,100 47 358 71,100 47
Social security benefit .. 109,900 329 61,300 48,600 293
Primary 87,700 355 51,700 376 35,900 324
Auxiliary 22,200 229 9,600 263 12,700 203
1 Includes 41,200 spouse annuities beginning at age 65 or older, 97,900 beginning at ages 60-
64 to spouses of 30-year employees, 2,400 beginning before age 65 to spouses with minor or
disabled children in their care, and 1,100 divorced spouse annuities. 2 Includes 1,200
divorced spouse annuities. 3 Data not available. 4 Net amount reflects offsets for 5,900
spouses who were also receiving an employee annuity. 5 Tier II amounts reflect restorations of tier I amounts for those receiving employee annuities, and reductions for maximum.
6 Sum of tier I, tier II, and vested dual benefit age reductions.
NOTE.-Detail will not produce overall average annuity amount as deductions for work and other adjustments are not reflected. Component data based on cases where record is available. There were 100 cases computed under the social security minimum guaranty.
104 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 19.-Spouse and divorced spouse annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and age of annuitant
Age of annuitant1 Total Full-rate annuities Reduced annuities
Number Percent Number Percent Number Percent
IN CURRENT-PAYMENT STATUS ON SEPTEMBER 30,1988 Under 60 2.000 1 2,000 1
60 to 61 11,800 5 8,200 6 3,500 5
62 to 64 32,600 15 20,400 14 12,200 16
65 to 69 65,100 30 46,500 33 18,500 24
70 to 74 52,000 24 35,300 25 16,700 22
75 to 79 32,900 15 16,600 12 16,300 21
80 to 84 16,900 8 8,800 6 8,100 11
85 to 89 5,700 3 3,900 3 1,800 2
90 and older 1,100 1 900 1 200 (1 2)
Total 220,100 100 142,700 100 77,400 100
Average age .... 70.7 70.2 71.6
AWARDED IN FISCAL YEAR 1988
Under 60 60 to 61 400 7,400 2 42 400 4,900 4 46 2,500 36
62 to 64 5,900 33 1,400 13 4,500 64
65 to 69 3,000 17 3,000 27
70 to 74 700 4 700 7
75 to 79 200 1 200 2
80 and older 100 1 100 1
Total 17,800 100 10,800 100 6,900 100
Average age .... 62.9 63.5 61.9
1 Age at end of fiscal year 1988 for annuities in current-payment status and age on beginning date for annuities awarded in year.
2 Less than 0.5 percent.
Table 20.-Survivor annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and amount
Disabled Widowed mothers Re™Fvorcedand Children
Total1 Aged widow(er)s widow(er)s (fathers) widow(er)s
Amount of annuity __________ _____________ ____________ __________________________________________
Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
IN CURRENT-PAYMENT STATUS
ON SEPTEMBER 30,1988 Less than $100 ... 5,200 2 2,800 1 100 1 100 6 1,700 16 500 3
$100 to $149.99 .. 9,500 3 7,800 3 200 3 200 8 900 9 400 2
8150 to 8199.99 .. 16,300 6 14,600 6 300 4 100 3 1,000 9 400 2
(>200 to $249.99 . 19.800 7 17,800 7 400 6 (2) 2 900 8 600 3
8250 to 8299.99 .. 19,900 7 17,200 7 400 6 100 2 800 7 1,400 8
8300 to 8349.99 . 18,000 6 15,300 6 500 6 100 3 800 7 1,300 8
8350 to 8399.99 . 18,100 6 15,200 6 500 6 100 4 800 7 1,600 10
8400 to 8449.99 .. 19,000 6 15,600 6 600 8 100 4 900 8 1,900 11
8450 to 8499.99 .. 20,900 7 16,600 6 800 11 200 8 900 8 2,400 14
8500 to $549.99 . 20,600 7 16,300 6 1,000 14 300 11 900 8 2,200 13
8550 to 8599.99 .. 24,400 8 20,900 8 1,000 14 300 12 700 6 1,400 9
8600 to 8649.99 . 23,300 8 20,800 8 800 11 200 10 400 4 1,000 6
8650 to 8699.99 . 31,500 11 29,600 12 500 7 200 10 300 2 900 5
8700 to 8749.99 . 17,500 6 16,400 6 200 2 200 7 100 1 600 3
8750 to 8799.99 . 12,000 4 11,500 4 100 1 100 5 100 1 200 1
8800 to 8849.99 . 8,000 3 7,700 3 (2) (2) 100 4 (2) (2) 100 (2)
8850 to 8899.99 . 4,700 2 4,600 2 (2) (2) (2) 1 (2) (2) (2) (2)
$900 and over .... 5,800 2 5,700 2 (2) (2) (2) 1 (2) (2) (2)
Total ...... 294,300 100 256,500 100 37,500 100 2,400 100 11,000 100 16,900 100
Average annuity $489 $499 $463 $499 $326 $447
See footnotes at end of table.
ANNUAL REPORTTABLES 105
106 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 20.-Survivor annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and amount - Continued___________
, .. Remarried and
Disabled Widowed mothers divorced Children
Total1 Aged widow(er)s widow(er)s (fathers) widow(er)s ____________
Amount of annuity _________ __________— —------------ ----------—--
Number Percent Number Percent Number Percent Number Percent Number Percent Number Percen
AWARDED IN FISCAL YEAR 1988
^ess than $100 . 1,100 6 700 5 (2) 6 (2) 11 300 18 ( ) 2
5100 to $149.99 .. 500 3 400 3 2 2 ( / Jgg S2 2
5150 to $199.99 .. 600 4 500 4 j 3 ( ) b A 3
>200.00 to $249.99 .. 700 4 500 4 2 3 3 1UU o
>250 to $299.99 ... 700 4 500 4 | 4 4 uu o 7
>300 to $349.99 ... 800 5 600 5 2 3 ) 3 1UU 8
5350 to $399.99.... 900 5 700 5 2 | 2 5 Q 1Q() n
5400 to $449.99 .. 1422 2 Z22 c 7 2 5 100 8 100 10
5450 to $499.99 . 1’122 Z §22 2 <2\ R /2 7 100 10 200 12
>500 to $549.99 .. 1,200 7 800 6 2 8 2 £ zvq n
>550 to $599.99 . 1,500 9 1,200 2 Q 11 r (2> 4 100 7
5600 to $649.99 . 1,200 7 900 7 2 1 0 | 2 J
>650 to $699.99 .. 1,100 7 900 7 0 10 ( 6 [’ 100 8
57 00 to $749.99 . 1,200 7 1,000 8 0 7 2 » ’ 3
5750 to $799.99 .. 1,000 6 900 7 2 8 j2 6 ( 1 O
1800 to $849.99 .... 600 4 600 4 2 2 ( & j2 / ^2 (2)
58 50 to $899.99 .... 600 3 500 4 2 2 4 ( i ......
S900 and over . 1,100 6 1,000 8 (2) (2) _________________ ____________
Total ....... 17,000 100 13,500 100 400 100 400 100 1,500 100 1,300 100
Average annuity..... $544_________________$506___________$478__________$353__________$484_______
1 Includes annuities to dependent parents. 2 Fewer than 50 or less than 0.5 percent. 3 Includes 4,400 annuities now payable as aged widow(er)s’
annuities.
NOTE.-Data exclude 100 survivor (option) annuities averaging $90 and 3,000 annuities to widow(er)s temporarily being paid at spouse rates pending final adjudication of survivor annuities.
ANNUAL REPORT TABLES 107
Table 21.-Survivor annuities in current-payment status on September 30,1988, by type and component
Disabled Widowed mothers Remarried Divorced
Component Totai Aged widowing J—
Number Average Number Average Number Average Number Average Number Average Number Average Total,railroad .... 294,300 $489 256,500 $499 7,500 $463 2,400 $499 5,300 $306 5,800 $344
Tier I, net .. 270,100 403 233,600 409 6,900 376 1,900 467 5,300 306 5,800 344
Gross ...... 294^300 562 256,500 570 7,500 597 2,400 391 5,300 576 5,800 626
OfY*set> for social
security benefit1 .... 139,500 337 127,600 338 2,200 326 (2) 307 3,300 333 3,800 354
TierILtotal .. 282,800 117 256,100 120 7,400 102 2,300 118 .........................
Regular .......... 281,600 115 255,300 118 7,400 100 2,300 115 .........................
Additional3 .... 5,800 104 5,500 104 100 181 (2) 156 .........................
1981 law, total4 . 34,100 81 27,600 85 900 97 1,300 128 .........................
Prior law, total . 248,700 121 228,500 124 6,500 102 1,100 106 .........................
Vested dual railroad
Security benefit81.... 39,500 52 38,200 51 1,300 69 (2) 87 .........................
TOfSarge5UCtlO.n. 121,300 77 108,400 70 7,400 155 ......... 3,200 103 2,200 115
SbeneSC!ir.1^.... 136,200 352 124,400 354 2,100 344 (2) 363 3,200 332 3,800 355
See footnotes at end of table.
108 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 21.-Survivor annuities in current-payment status on September 30,1988, by type and Component-Continued
Children-
r r, , Aged 18 and over _
Component Under age 18 Students aged 18-22 and disabled Parents
Number Average Number Average Number Average Number Average Total, railroad .......... 5,400 $524 200 $563 11,200 $409 100 $399
Tier I, net ................. 5,400 467 200 483 10,900 341 100 308
Gross ...................... 5,400 473 200 489 11,200 381 100 547
Offset for social security
benefit1 .................... 200 282 (2) 234 2,300 239 100 332
Tier II, total .............. 5,400 59 200 82 11,200 79 100 110
Regular .................... 5,200 61 200 84 11,100 79 100 110
Additional3 .................................................. 100 8 ....
1981 law, total4 .......... 3,500 36 100 58 700 35 (2) 93
Prior law, total ........... 1,900 102 100 104 10,500 82 100 117
Social security benefit........ 200 294 (2) 261 2,300 255 100 341
1 Includes offset for tier I portion of employee annuity. 2Fewer than 50. includes spouse minimum increase, conversion from 1937 Act increase, and restoration of tier I reduction for receipt of employee annuity. 4Tier II based on deceased employee’s tier II amount. 5Sum of tier I and regular
1981 law tier II age reductions.
NOTE.-Detail will not produce overall average annuity amounts as deductions for work and other adjustments are not reflected. Component data based on cases where record is available. Data exclude 100 survivor (option) annuities averaging $90 and 3,000 annuities to widow(er)s temporarily being paid at spouse rates pending final adjudication of survivor annuities.
ANNUAL REPORT TABLES 109
Table 22.-Survivor annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and age of annuitant Disabled Widowed mothers ReXorced^ Children
Age of annuitant1 Total2 Aged widow(er)s widow(er)s (lathers) widow(er)s
Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
IN CURRENT-PAYMENT STATUS
ON SEPTEMBER 30,1988 Under 10 ....... 800 (3) .... ... ... ... ......... .............. 800 5
10to 17 ...... 4,500 2 .... ... ... ... .......... .............. 4,500 27
18 to 21 ....... 400 (3) .... ... ... ... (3) (3) .......... 400 2
22 to 29 ....... 800 (3) ... ... (3) 1 (3) (3) 800 4
30to39 ....... 2,200 1 ... ... 400 16 (3; (3) i 800 11
40to49 ....... 3,300 1 ... ... 800 33 (3, (3> 2,500 15
50 to 59 ..... 4,600 2 ... 1,200 16 800 35 100 1 2,500 15
60 to 69 ..... 48,900 17 38,400 15 3,700 50 300 15 4,000 36 2,400 14
70 to 79 ..... 98,400 33 90,500 35 2,500 33 (3) (3, 4,400 40 1,000 6
80 to 89 .... 101,600 35 99,200 39 (3) (3) ... ... 2,100 19 200 1
90 and older . 28,800 10 28,400 11 ... ... ... ... 300 2 (3) (3)
Total ..... 294,300 1 00 256,500 100 47,500 1 00 2,400 1 00 11,000 100 16,900 1 00 !
Average age .... 76.1 79.2 66.7 49.4 73.3 39.0 <
____________ ____________________________________________________________1 ------11 t See footnotes at end of table.___________________________________________J
(
110 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 22,-Survivor annuities in current-payment status on September 30,1988, and awarded in fiscal year 1988, by type and age of annuitant - Continued Disabled Widowed mothers ^Twrced*™1 Children
Total Aged widow(er)s widow(er)s (fathers) widow(er)s
Age of annuitant1------------------------------------------- --------------- ---------------- --------------
Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent
AWARDED IN FISCAL YEAR 1988
Under 10 ........ 200 1 ... ... 200 19
10to 17 ......... 700 4 ... ... 700 54
18 to 21 ........ 100 (3) ... ... 100 7
22to29 .......... 100 (3) .... ... ... (3) 4 (3) (3) !00 5
30to39 .......... 200 1 .... ... ... 100 24 (3) 1 100 6
40 to 49 ........ 200 1 .... ... (3) 1 100 39 (3) 1 100 5
50to59 .......... 500 3 .... ... 400 99 100 28 (3) 2 (3) 3
60to69 ........ 6,900 41 6,000 45 ... (3) 5 800 58 (3, 1
70to79 ........ 5,100 30 4,700 35 ... ... 400 27
80 to 89 ...... 2,600 16 2,500 19 ... ... 100 9
90 and older .... 300 2 300 2 ... ... (3) 1
Total ........ 17,000 100 13,500 100 400 100 400 100 1,500 100 1,300 100
Average age .... 66.7 72.0 55.3 45.7 67.7 18.2
1 Age on birthday in fiscal year 1988 for annuities in current-payment status at end of year and age on beginning date for annuities awarded in year.
2 Includes annuities to dependent parents.
3 Fewer than 50 or less than 0.5 percent.
4 Includes 4,400 annuities now payable as aged widowers’ annuities.
NOTE.-Data exclude 100 survivor (option) annuities and 3,000 annuities to widow(er)s temporarily being paid at spouse rates pending final adjudication of survivor annuities.
ANNUAL REPORT TABLES 111
Table 23.-Unemployment and sickness beneficiaries and qualified employees, by age, benefit year 1987-88
Age on birthday in calendar year 1987 Unemployment beneficiaries1 Sickness beneficiaries1 Qualified employees Beneficiaries per 100 qualified employees
Unemployment Sickness
Under 25 600 300 3,200 19 8
25 to 29 6,000 2,400 22,300 27 11
30 to 34 14,100 6,700 60,600 23 11
35 to 39 12,700 7,700 75,600 17 10
40 to 44 7,800 6,400 63,400 12 10
45 to 49 4,800 4,700 44,600 11 10
50 to 54 3,400 4,400 38,200 9 11
55 to 59 3,300 5,800 44,600 7 13
60 to 64 1,400 3,200 34,900 4 9
65 and older ... 100 300 4,800 2 5
Total2 54,400 41,700 393,000 14 11
1 Includes a small number of beneficiaries paid on the basis of qualifying compensation earned in a year other than 1986.
2 Includes beneficiaries whose age was not reported.
NOTE.-Beneficiary figures based on payments made in the year regardless of the benefit year for which payment was made. Qualified employeesror 1987-88 benefityear are those qualified on the basis of 1986 compensation.
112 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 24.--Principal administrative data for the unemployment and sickness benefit programs, benefit years 1984-88
Item 1983-84 1984-85 1985-86 1986-87 1987-88
Qualified employees ................ 511,900 458,600 445,200 419,900 393,000
UNEMPLOYMENT BENEFITS p^^1^>^2'ofbene^'lts paid 0 8,*800 9,100 3 8,400
Includes beneficiaries who received supplemental extended unemployment benefits.
ANNUAL REPORT TABLES 113
Table 25.—Principal administrative data for placements of unemployment claimants, benefit years 1984-88
Item 1983-84 1984-85 1985-86 1986-87 1987-88
In railroad industry 965 368 258 258 277
Outside railroad industry ... 204 77 93 128 120
By Board offices, total 1,169 445 351 386 397
In railroad industry 518 277 310 129 118
Outside railroad industry ... 1,577 1,008 1,078 844 527
By unemployment claims agents, total 2,095 1,285 1,388 973 645
In railroad industry 1,487 645 571 388 398
Outside railroad industry ... 1,899 1,155 1,201 1,023 688
All placements1 3,386 1,800 1,772 1,411 1,086
1 Includes placements made by State employment service offices.
114 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 26.-Number of employees and their compensation, for all employers and class I railroads, 1978-87
All employees
Compensation (millions) Class 1 railroad employees
Taxable (RRA)2 Compensation
Calendar year (millions)
Tier I --------------------
Number Taxable
Number (thousands) Tier (thousands) (RRA)2
_________________ „ II ---------------------------------- Total Average1 Total Amount ^cent Total Average1 Total Tier I Tier II
1978 .... 667 542 $10,938 $9,020 82.5 .... 602 491 $9,909 $8,203 ...
1979 ......... 675 554 12,472 11,168 89.5 $10,130 610 503 11 300 10 183 $9,237
1980 ......... 636 532 13,129 11,870 90.4 10,559 568 480 11,784 10,804 9,633
1981 ......... 603 503 13,368 12.402 92.8 10,897 545 457 12,106 11 338 9 951
1982 ......... 555 440 12,662 11,692 92.3 10,363 498 398 11,479 10 619 9,409
1983 ......... 497 395 12,499 11,585 92.7 10,265 428 343 10,867 10 129 8 965
1984 ......... 474 395 13,223 12,250 92.6 10,813 411 345 11,552 10,805 9,524
1985 ......... 452 372 12,825 12,131 94.6 10,926 384 323 11,146 10,608 9,544
1986 ......... 423 342 12,223 11,920 97.5 10,767 358 293 10,484 10,331 9,311
19873 ........ 398 320 11,913 11,705 98.3 10,509 333 271 10,064 10,003 8,961
1 Average of 12 mid-month employment figures. 2 Maximum taxable monthly compensation under Railroad Retirement Act (tier I) was $ 1,47b in 1978, $1,908.33 in T979, $2,158.33 in 1980. $2,475 in 1981. $2,700 in 1982. $2,975 in 1983 and $3J50 in 1984. Separate tier II monthly maximum was $1,575 in 1979, $1,700 in 1980, $1,850 in 1981, $2,025 in 1982, $2,225 in 1983 and $2,350 in 1984. Beginning in 1985, the maximum taxable amounts are based on annual, rather than monthly, amounts. The annual maximum taxable compensation under tier I was $39,600 in 1985, $42,000 in 1986 and $43,800 in 1987. Under tier II the annual maximum was $29,700 in 1985, $31,500 in 1986 and $32,700 in 1987. 3 Preliminary.
NOTE.-Average employment and total compensation based on Interstate Commerce Commission (ICC) reports. Data for all employees include estimates of employees and compensation not reported to ICC. Data revised to include late reports.
ANNUAL REPORT TABLES 115
Table 27.-Employers and service-creditable units covered under the Railroad Retirement and Railroad Unemployment Insurance Acts on September 30,1988, oy class
Class
Number
Class I line-haul railroads ........................................... 28
Class II line-haul railroads .......................................... 22
Class III line-haul railroads ........................................ 484
Switching and terminal companies...................................... 203
Express companies....................................................... 1
Car-loan companies..................................................... 10
Lessor companies ..................................................... 170
Carrier associations................................................... 86
Railway labor organizations national in scope1......................... 21
Miscellaneous ........................................................ 57
Employers, total .............................................. 1,082
Service-creditable units2......................................... 94
Total ......................................................... 1,176
Excludes subordinate units. 2Companies that are not themselves employers; service covered is generally service under contract that was held to be service to an employer. Does not include organizations employing "employee representatives.”
NOTE.-A total of 2,460 employers and service-creditable units were covered in the period from January 1, 1937, through September 30, 1988, of which 1,284 had ceased operating before September 30,1988.
Actuarial Report
United States of America RAILROAD RETIREMENT BOARD 844 Rush Street
Chicago, Illinois 60611
BOARD MEMBERS:
T. J. SIMON (CHAIRMAN)
C.J. CHAMBERLAIN (LABOR)
J.D. CRAWFORD (MANAGEMENT)
June 14, 1989
Honorable Dan Quayle President of the Senate Washington, D.C. 20510
Dear Mr. President:
Enclosed, for the consideration of the Congress, is a report prepared and submitted in accordance with Section 502 of the Railroad Retirement Solvency Act, Public Law 98-76. Section 502 requires the Board to submit to the Congress a report on the actuarial status of the railroad retirement system including any recommendations for financing changes.
The report, which addresses the 25-year period 1989 to 2013, contains generally favorable information concerning railroad retirement financing. It indicates that cash flow problems arise only under our most pessimistic employment assumption - 5.5 percent annual declines in railroad employment - and not until 2012. The report notes that, under current law, revenue derived from the income tax on Railroad Retirement Account benefits is transferred to the Railroad Retirement Account. However, current law also provides that such transfers will not be applicable to benefits paid after September 30, 1989; income tax revenues related to Railroad Retirement Account benefit payments subsequent to that date are to be deposited in the general fund. The report includes a table comparing projected account balances under current law with those resulting from extending the transfers for 5 years or 10 years. An extension for 5 years or 10 years would eliminate cash flow problems during the 25-year projection period; extending the transfers indefinitely would, of course, have an even more positive impact, perhaps eliminating cash flow problems altogether except under an extremely pessimistic employment scenario.
117
118 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
The report does not recommend any financing changes. The Commission on Railroad Retirement Reform, authorized under Public Law 100-203, is currently reviewing the financing of the railroad retirement system and is scheduled to report to the Congress by October 1, 1990.
Charles J. Chamberlain
John D. Crawford
Enclosure
ACTUARIAL REPORT 119
United States of America RAILROAD RETIREMENT BOARD 844 Rush Street
Chicago, Illinois 60611
BOARD MEMBERS:
T. J. SIMON (CHAIRMAN)
C.J. CHAMBERLAIN (LABOR)
J.D. CRAWFORD (MANAGEMENT)
June 14, 1989
Honorable Thomas S. Foley
Speaker of the House of Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
Enclosed, for the consideration of the Congress, is a report prepared and submitted in accordance with Section 502 of the Railroad Retirement Solvency Act, Public Law 98-76. Section 502 requires the Board to submit to the Congress a report on the actuarial status of the railroad retirement system including any recommendations for financing changes.
The report, which addresses the 25-year period 1989 to 2013, contains generally favorable information concerning railroad retirement financing. It indicates that cash flow problems arise only under our most pessimistic employment assumption — 5.5 percent annual declines in railroad employment - and not until 2012. The report notes that, under current law, revenue derived from the income tax on Railroad Retirement Account benefits is transferred to the Railroad Retirement Account. However, current law also provides that such transfers will not be applicable to benefits paid after September 30, 1989; income tax revenues related to Railroad Retirement Account benefit payments subsequent to that date are to be deposited in the general fund. The report includes a table comparing projected account balances under current law with those resulting from extending the transfers for 5 years or 10 years. An extension for 5 years or 10 years would eliminate cash flow problems during the 25-year projection period; extending the transfers indefinitely would, of course, have an even more positive impact, perhaps eliminating cash flow problems altogether except under an extremely pessimistic employment scenario.
120 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
The report does not recommend any financing changes. The Commission on Railroad Retirement Reform, authorized under Public Law 100-203, is currently reviewing the financing of the railroad retirement system and is scheduled to report to the Congress by October 1,1990.
Charles J. Chamberlain
Enclosure
ACTUARIAL REPORT 121
Annual Actuarial Report Required by Railroad Retirement Solvency Act of 1983
I. Introduction
Section 502 of the 1983 Solvency Act requires the Railroad Retirement Board to prepare an annual report on the actuarial status of the railroad retirement system. The report must be submitted to the Congress by July 1. The report must contain recommendations for any financing changes which might be advisable, including (1) changes in the tax rates and (2) whether any part of the taxes on employers should be diverted to the Railroad Unemployment Insurance Account to aid in the repayment of its debt to the Railroad Retirement Account.
This report is intended to meet the requirements of Section 502 for 1989.
II. Railroad Employment
Over the years, the main source of income to the railroad retirement system has been a payroll tax on railroad employment. The amount of income that the tax produces is directly dependent on the number of railroad employees covered under the system.
An abbreviated history of average railroad employment from 1955 through 1985 is shown in the following table.
Year Average employment for year Annual rate of decline for the 5-year period beginning with the year
1955 1,239,000 6.0%
1960 909,000 3.7
1965 753,000 3.2
1970 640,000 3.1
1975 548,000 0.6
1980 532,000 6.9
1985 373,000
122 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 19«H
Between 1955 and 1985, the average annual rate of decline was 3.9 percent. Since 1985, average employment and rates of decline have been as follows:
Year Average employment Annual rate of decline for year from previous year
1986 1987 1988 342,000 8.1% 320,000 6.4 307,000 4.1
Two things become clear from the figures shown - (1) railroad employment has continued to decline over a long period of years, and (2) the rate of decline has been volatile, giving no clear indication of a trend on which to base projections.
Beginning with the sixteenth actuarial valuation, which served as the first annual report required by Section 502, cash flow projections were made based on three sets of employment assumptions. The three sets were intended to represent high (optimistic), intermediate, and low (pessimistic) expectations of future employment. A constant annual percentage rate of decline over a period of years was used to project future employment. The percentages used for the sixteenth valuation were 2.0 percent, 3.0 percent and 4.0 percent, respectively. Because employment levels dropped more than expected, the rates of decline assumed were changed to 3.5, 4.0 and 4.5 percent for the 1986 annual report and to 3.5, 4.5 and 5.5 percent for the 1987 annual report.
The seventeenth actuarial valuation, which served as the 1988 annual report required by Section 502, continued the use of 3.5, 4.5 and 5.5 percent assumed declines in railroad employment. The valuation also introduced two additional sets of employment assumptions developed by the Association of American Railroads. These two sets of assumptions were based on (1) stability of employment in passenger service (Amtrak and commuter service) as distinguished from freight service, and (2) surveys of employment projections of class I railroads for freight service. More specifically, these two sets of assumptions are that (1) passenger employment would hold at its then present level of 46,000, (2) Class 1 railroads would eliminate a total of 50,000 positions in freight service by the end of 1991 as a result of crew consist agreements and similar agreements providing for reductions in employment, and (3) the employment base, excluding the positions in (1) and (2), would decline at a constant annual rate (2.0 percent for one set of assumptions, and 3.0 percent for the other set).
The projected average employment for 1988, based on the five sets of employment assumptions used in the seventeenth actuarial valuation, ranged from 292,370 to 306,000. Actual average employment for 1988 was 307,000 (subject to later adjustment), higher than any of the projected amounts. Based on this result and the favorable employment
ACTUARIAL REPORT 123
level in early 1989, it was decided to use 1988 average employment of 307,000 as a starting point and continue the use of the rates of decline adopted for the seventeenth actuarial valuation. The resulting five sets of employment assumptions, denoted as A, B, C, D and E, are shown in Table 1 at the end of this report. Employment assumptions A, B and C are based on 3.5, 4.5 and 5.5 percent annual declines, respectively. Employment assumptions D and E, developed by the Association of American Railroads, assume that (1) passenger employment will hold at its present level of 46,000, (2) Class I railroads will eliminate a total of 50,000 freight service positions by the end of 1993, and (3) the employment base, excluding the positions in (1) and (2), will decline at a constant annual rate (2.0 percent for Assumption D and 3.0 percent for Assumption E).
III. Results
Projections were made for the various components of income and outgo under each employment assumption for the 25 calendar years 1989-2013. The projections of these components were combined and the investment income calculated to produce the projected balances in the Railroad Retirement (RR) Account and the Social Security Equivalent Benefit (SSEB) Account at the end of each projection year. The results are summarized in Table 2.
Table 2 consists of five tables, one for each of employment assumptions A, B, C, I) and E. The tables show, for each account, (1) the various elements of income and outgo, (2) the account balance on December 31, and (3) the interplay between the two accounts when the SSEB Account must transfer money to the RR Account. The tables also show combined balances for the two accounts.
Table 2 indicates that cash flow problems arise only under employment assumption C, and not until 2012. The results shown in Table 2 will be discussed separately for each account.
A. The Social Security Equivalent Benefit Account
The SSEB Account pays the social security level of benefits and administrative expenses allocable to those benefits, and it receives as income the social security level of taxes. If there were no other source of income or outgo during the course of a year, a surplus or deficiency would build up, depending on whether taxes exceed or are less than benefits. The SSEB Account, however, receives or pays any financial interchange transfers. The financial interchange transfer, subject to the qualification in the next paragraph, should be enough to extinguish any surplus or deficit for the year. The SSEB Account can thus be regarded as automatically funded, the financial interchange being the mechanism for correcting any surplus or deficiency.
124 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
The qualification mentioned above arises because, in a relatively small number of cases, the railroad retirement system does not pay benefits when the social security system would. In these cases, mainly dependent children of retired railroad employees, the SSEB Account collects an amount through the financial interchange but does not pay a corresponding benefit. This imbalance between outgo and income is small in any particular year, but over many years a substantial fund builds up. The SSEB Account must transfer money to the RR Account if (1) the balance in the RR Account is insufficient to enable it to pay benefits, and (2) the transfer will not jeopardize the payment of SSEB Account benefits. There is no requirement that these transfers be repaid.
Under each projection, if the RR Account runs into cash-flow problems, the SSEB Account is assumed to transfer enough of its accumulated funds to allow the RR Account to meet its benefit obligations. This continues until the SSEB Account’s accumulated balance is exhausted. Thereafter, the SSEB Account is assumed to transfer to the RR Account any excess of income over outgo, maintaining a zero balance.
B. Railroad Retirement Account
Under each of employment assumptions A, B and C, the RR Account balance grows for a number of years and then begins to decline.
Under employment assumption A, the RR Account still has a positive balance at the end of the projection period (Table 2A). Under employment assumption B, the RR Account balance would become negative in 2013 if no money were allowed to be transferred from the SSEB Account (Table 2B). By the end of 2012, the SSEB Account has built up a balance of $5,511 million for the reasons given in the preceding section. The SSEB Account transfers enough money to the RR Account in 2013 to enable the RR Account to meet its obligations.
Under employment assumption C, the RR Account balance would become negative in 2010 if no money were allowed to be transferred from the SSEB Account (Table 2C). By the end of 2009, the SSEB Account has built up a balance of $4,414 million. The SSEB Account transfers enough money to the RR Account in 2010 to enable to the RR Account to meet its obligations, but in 2012 the SSEB Account’s balance becomes exhausted. At the end of that year, -$1,275 million is shown as the RR Account balance after transfer from the SSEB Account. Negative aftertransfer balances indicate the amount that the RR Account would owe, including interest, if it could pay unreduced benefits by borrowing from some unknown source. The SSEB Account is assumed to transfer to the RR Account any excess of income over outgo in 2013; this does not add to the RR Account’s debt.
ACTUARIAL REPORT 125
Under employment assumption D, the RR Account balance continues to grow throughout the projection period (Table 2D). Under employment assumption E, the RR Account balance grows until 2006 and then begins to decline. The account would still have a positive balance at the end of the projection period (Table 2E).
C. Analysis of Results
The following table shows, for each employment assumption, the tier II tax rate increase needed January 1, 1990, to provide for a December 31, 2013, balance in the combined RR and SSEB Account equal to 50 percent of the preceding 12 months’ benefit payments. Part or all of the additional funding could, of course, be achieved by reductions in benefits.
Employment assumption Tier II tax rate increase on January 1, 1990
A B C D E none 0.02% 1.86% none none
Though no tax rate increase is indicated under employment assumption A or E, the combined RR and SSEB Account balances under both assumptions are in a declining trend at the end of the projection period. This indicates that cash flow problems might arise under either assumption some time beyond the end of the projection period.
The overall conclusion is that, barring a sudden, unanticipated, large decrease in railroad employment, the railroad retirement system will experience no cash flow problems during the next 20 years. The longterm stability of the system, however, is still questionable. Under the current financing structure, actual levels of railroad employment over the coming years will determine whether corrective action is necessary.
IV. Recommendations
As stated in the introduction, this report must contain recommendations with regard to (1) tax rates and (2) whether any part of the taxes on employers should be diverted to the Railroad Unemployment Insurance Account to aid in the repayment of its debt to the RR Account.
126 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
A. Tax Rates
Last year’s report, contained in the seventeenth actuarial valuation, did not recommend any change in the tax rates imposed on employers and employees. The report pointed out that the corrective action taken in the 1987 Omnibus Budget Reconciliation Act had postponed the date of any projected cash flow problem to a distant point in the future. Furthermore, the report stated, the Reconciliation Act had authorized the establishment of a commission to study alternative means of financing the system; and since there was no compelling need for a change in tax rates, the best course seemed to be to await the report of the commission, which could conceivably propose a different financing structure.
As was the case in last year’s report, and for the same reasons, this report does not recommend any change in the tax rates imposed on employers and employees.
The results of the projections contained in this report follow a pattern similar to those in last year’s report. While the combined RR and SSEB Account balances projected in this report are slightly lower under employment assumption A and the first few years under employment assumption B, the remaining projected balances are slightly higher in this report than in last year’s report. The Railroad Unemployment Insurance and Retirement Improvement Act of 1988, enacted late last yeai, contained provisions which had both positive and negative effects on the projected account balances. On the positive side, the railroad unemployment insurance loan repayment tax, previously scheduled to terminate in 1990, was fixed at 4 percent in January 1989 and will remain in force at that rate until the Railroad Unemployment Insurance Account debt to the RR Account is fully repaid with interest. On the negative side from a cash-flow standpoint, (1) the "last person service” provision, which previously suspended annuities of retired employees and spouses who returned to work for their last pre-retirement nonrailroad employers, was liberalized to allow the payment of benefits, subject to work deductions, and (2) a lump-sum retirement benefit was provided, approximating payroll taxes deducted at time of separation or severance for which retirement service credits are not given.
In addition to the effects of the Railroad Unemployment Insurance and Retirement Improvement Act of 1988 on projected account balances, operating results over the past year have also had an effect. Benefits are generally projected ata higher level in this report than they were in last year s report. Io a large degree, this results from recent cost-of-living benefit increases higher than were assumed in preparing last year’s projections. Recent employment levels higher than assumed in last year s projections, though somewhat offset by lower actual wage increases than assumed last year, led to generally higher levels of projected tax income in this report than in last year’s report.
ACTUARIAL REPORT 127
B. Diversion of Taxes to Railroad Unemployment Insurance Account
No diversion of taxes from the RR Account to the Railroad Unemployment Insurance Account is recommended at this time. It would appear untimely to consider such a diversion when the whole structure of the railroad retirement system is being studied by the recently appointed Commission on Railroad Retirement Reform. Further, as stated in the preceding section, the Railroad Unemployment Insurance and Retirement Improvement Act of 1988 has made provision for the total repayment, including interest, of the debt of the Railroad Unemployment Insurance Account to the RR Account.
V. Extension of Revenue Transfers to RR Account
Under current law, revenue derived from the income tax on RR Account benefits is transferred to the RR Account. However, current law also provides that these transfers will not be applicable to benefits paid after September 30, 1989; income tax revenues related to RR Account benefit payments subsequent to that date are to be deposited in the general fund.
Table 3 illustrates the effect of discontinuing these transfers. It shows projections of the combined RR and SSEB Account balance for each of the 5 employment assumptions under current law and the account balances that would result if the income tax transfers were extended for 5 years or 10 years.
The Table 3 data include projected income tax revenues that were derived from a projection model used by the Department of the Treasury. Treasury officials have advised us that a preliminary analysis of income tax returns for 1987, the first year under recent tax reform, indicates that the model may have to be adjusted to reduce the projected income tax amounts.
128 ANNUAL REPORT, RAILROAD RETIREMENT BOARD 1988
Table 1 .-Employment Assumptions Used in 1989 Actuarial Report
Calendar Year Average Employment (thousands)
A B C D E
1988 307 307 307 307.00 307.00
1989 296 293 290 290.62 288.43
1990 286 280 274 276.33 272.06
1991 276 267 259 264.12 257.88
1992 266 255 245 254.00 245.88
1993 257 244 231 245.96 236.06
1994 248 233 219 240.00 228.42
1995 239 222 207 236.12 222.95
1996 231 212 195 232.32 217.64
1997 223 203 185 228.59 212.49
1998 215 194 174 224.94 207.50
1999 207 185 165 221.36 202.65
2000 200 177 156 217.85 197.95
2001 193 169 147 214.42 193.39
2002 186 161 139 211.05 188.97
2003 180 154 131 207.75 184.68
2004 174 147 124 204.51 180.52
2005 168 140 117 201.34 176.49
2006 162 134 111 198.23 172.57
2007 156 128 105 195.19 168.77
2008 151 122 99 192.21 165.05
2009 145 117 94 189.28 161.52
2010 140 111 88 186.42 158.05
2011 135 106 84 183.61 154.69
2012 131 102 79 180.86 151.43
2013 126 97 75 178.16 148.27
ACTUARIAL REPORT 129
Table 2 A. Progress of the Railroad Retirement (RR land Social Security Equivalent Benefit (SSEB (Accounts
under Assumption A (Dollar Amounts in Millions)
Calendar Railroad Retirement Account Social Security Equivalent Benefit Account Combined
Year '’'Benefits Tax Other Balance, Benefits Other Tax Other Balance, RR and SSEB
and admin- income income end year and admin- expense income income end year balance, istration (b (2) istration (3) (4) end year
1989 $2,464 $2,504 $751 $8,053 $3,989 $2,555 $1,826 $4,817 $437 $8,490
1990 2,530 2,306 780 8,609 4,116 2,390 1,862 4,747 539 9,148
1991 2,590 2,313 761 9.093 4,254 2.479 1,869 4,968 644 9,737
1992 2,646 2,321 769 9,537 4,384 2,593 1,877 5,213 757 10,294
1993 2,675 2,326 795 9,983 4,509 2,729 1,884 5,476 879 10,862
1994 2,699 2,328 805 10,417 4,618 2,859 1,889 5,720 1,011 11,428
1995 2 719 2,331 827 10,856 4,708 2,977 1,894 5,932 1,151 12,007
1996 2,734 2,337 822 11,281 4,781 3,075 1,900 6,106 1,302 12,583
1997 2.747 2,339 737 11.610 4,847 3,152 1,904 6,256 1,462 13,072
1998 2,761 2,339 754 11,942 4,906 3,222 1,906 6,393 1,633 13,575
1999 2*777 2,343 773 12,281 4,960 3,286 1,910 6,519 1,816 14,097
2000 2 792 2,342 791 12,622 5,011 3,343 1,910 6,638 2,010 14,632
2001 2’,819 2,340 807 12,950 5,051 3,397 1,909 6,746 2,217 15,167
2002 2 865 2,336 785 13,206 5,081 3,445 1,906 6,839 2,436 15,642
2003 2 917 2,334 791 13.415 5,117 3,483 1,904 6,930 2,669 16,084
2004 2,975 2,327 786 13,553 5,159 3,523 1,896 7,034 2,917 16,470
2005 3,037 2,319 792 13,626 5,206 3,574 1,887 7,157 3,181 16,807
2006 3 113 2,310 793 13,616 5,261 3,633 1,877 7,298 3,462 17,078
2007 3 213 2,303 790 13.496 5,323 3,702 1,868 7,456 3,760 17,256
2008 3,319 2,296 779 13,253 5,406 3,778 1,857 7,644 4,078 17,331
2009 3,425 2,281 761 12,870 5,516 3,873 1.841 7,887 4,416 17,286
2010 3,542 2,272 734 12,334 5,628 4,002 1,828 8,163 4,777 17,111
2011 3,677 2,263 698 11,617 5,764 4,139 1,814 8,474 5,162 16,779
2012 3,833 2,246 649 10,680 5,924 4,295 1,795 8,835 5,573 16,253
2013 3,959 2,235 589 9,546 6,114 4,482 1,781 9,253 6,011 15,557
includes payroll taxes, income taxes on benefits, and tax transfers from supplemental annuity account, includes repayments on loans made to unemployment insurance account and interest income. 3lncludes repayment of advances from general revenues. 4Includes financial interchange income, advances from general revenues, and interest income.
130 ANNUAL REPORT, RAILROAD RETIREMEN f BOARD 1988
Table 2B. Progress of the Calendar glance Kn^te fTra"fe Bala"«a?er Combinad
“str’atton' e?3,5'ear istra^ion*"' 'I?"868 ,n“me ‘"“me ‘'"'’.s'"" r*°'RR SSEBtoM°m “’batanw.™
_____________________ ' ' * RR SSEB end y
1993 2,675 2,239 777 9,704 4 509 2 779 1818 K ail ........... 9,383 757 10’120
1994 2,699 2,225 779 10 008 4 618 2 926 lain ?’a?? 1 m? ..... 9,704 879 10’583
1995 2,719 2 210 791 0 291 4708 3 058 180? 6?nt ’?! ......... IM? 1,011 11,019
1996 2,734 2,192 790 10,540 4 781 3 171 79I fi’w ,151 ...... 0,291 1’121 11,442
1997 2,747 2,174 719 10 685 4847 3 266 1 777 S 1’52? .... 10,540 1,302 11,842
1998 2,761 2,153 693 10,771 4906 3 353 763 6668 }’$? IM5 1,462 12’147
1999 2,777 2,132 696 10,822 4960 3 435 1 748 683? Ia?2 ......... Ml 1,633 12’404
2000 2,792 2,113 697 10 840 5 011 3 512 1 734 6 984 Inin ....... !’E 1,816 12,638
2001 2,819 2,093 693 10808 5 051 3 583 1 718 ?’?99 9 9 2 ...... IMS 2,010 12’850
2002 2,865 2,069 648 10 660 5 080 3 64^ iZqq Hl? 10,808 2,216 13,024
2003 2,916 2:041 629 10414 5 115 ^699 ’ 7^71 Ml ........ 12,66° 2,434 13’094
2004 2,974 2,017 596 10 053 5*155 3 760 i’S5 Ml 2,666 ..... 10,414 2,666 13,080
2005 3,036 1,990 572 9 578 5 200 3 825 1 630 ?’?1 10,053 2,911 12,964
2006 3,112 1,962 540 8 969 5 253 3 89? 1 fin? M? 3,171 ...... 9,578 3,171 12,749
2007 3,210 1,933 500 8 192 5311 3979 }’??? Ml MZ ....... 8,969 3,447 12,416
2008 3,315 1,900 449 7 226 5 390 4070 1 545 8 996 M? ....... 8,192 3,740 n’932
2009 3,420 1,868 387 6 061 5 496 4 182 1 5?t a’49? MJ ....... 7,226 4,051 H>277
: IS
2013 3’944 1’737 .. I1.1041 6.0’0 4:840 i:384 9353 5338 " $i,072" b.104 1,834 4,M4
-‘"C.ud? repayments on ,oans made to
‘Includes repayment of advances from general re“nu«“ Sad^a S-»n«fe™,TM1 s. ? I ’ <” ‘,S before tra"sfers from SSEB Account,
general revenues, and intereat income. 4or 2013"balance UbefoSj.StoRBA^.""4- " f,nanC,al int 1,015 4,871 24,895 29,817 33,673 15,337 20,260 24,116
UNIVERSITY OF LOUISVILLE LIBRARIES
U005 24971 107 2
HD 7116 .R12 U4 1988