[Railroad Retirement Board 1991 Annual Report for Fiscal Year Ended September 30, 1990]
[From the U.S. Government Publishing Office, www.gpo.gov]
United States Railroad Retirement Board
1991 Annual Report
U. S. Railroad Retirement Board
Mission Statement
1 he primary mission of the Railroad Retirement Board is to administer the Railroad Retirement and Railroad U nemployment Insurance Acts, and to assist in the administration of the Social Security Act and the Internal Revenue Code.
Policy Statement on Quality
In carrying out our mission, the Railroad Retirement Board will pay benefits to the right \ people, in the right amounts, in a timely manner, treat every person who comes into contact with the
agency with courtesy and concern, and respond to all inquiries promptly, accurately, and clearly. The RRB will maintain a work environment characterized by teamwork, respect, and a commitment to doing the job right the first time.
m 1:^1
MAR 1 0 2010
TO THE CONGRESS OF THE UNITED STATES:
UofL GOVT. DOCUMENTS
I hereby submit to the Congress the Annual Report of tfi&D. DEPOSITORY ITEM Railroad Retirement Board for Fiscal Year 1990, pursuant to the provisions of section 7(b)(6) of the Railroad Retirement Act, and section 12(1) of the Railroad Unemployment Insurance Act.
The Railroad Retirement Board (RRB) serves nearly 900,000 railroad retirees and their families and almost 280,000 railroad employees who rely on the system for retirement, unemployment, disability, and sickness insurance benefits. Beneficiaries depend on the financial integrity of the pension funds for payment of their benefits.
This report includes the RRB' s 18th actuarial valuatioitfT^^^^^^^^ of the railroad retirement program's assets and liabilities?' ■ RQlTV
“ * -1 i U; J /
The valuation concluded that, barring a sudden, unanticipated//
T,0V 07 1991 large drop in railroad employment, the railroad retirement system will experience no cash-flow problems for at
20 years. The long-term stability of the system, howev^T^UHm^^^Hh remains guestionable, and under the current financing structure, actual levels of rail employment in the coming years will determine whether additional corrective action is necessary.
The Railroad Retirement Reform Commission, created by the Congress to give the rail sector a chance to address the financial instability of the rail pension, issued its report in September of 1990. I strongly oppose the report's recommendation to renew the diversion of Federal income taxes
to the rail pension. Since 1983, approximately $1.5 billion in such taxpayer subsidies have been given to the rail pension fund. Railroad pension benefits should be financed solely by rail sector resources, and I will continue to oppose any additional general revenue funding measures for the railroad retirement system.
Other Commission recommendations such as privatization hold promise as equitable reforms to the system; rules protecting private pensions (ERISA) should also apply to the railroad's private pension system.
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The Commission adopted a proposal contained in the Administration’s FY 1992 budget to extend benefits to all rail sector beneficiaries, such as widows and divorced spouses. These individuals would have been eligible for benefits under Social Security but are denied equivalent benefits by the rail system. Conforming rail social security and Social Security would make the rail pension benefit structure more equitable. This Administration has a strong belief in just governance and supports such a measure that would conform benefit eligibility under the Railroad Retirement Act with the Social Security Act. The Office of Management and Budget (OMB) was concerned
with the overall management of RRB programs and engaged in a thorough management review of its operations. As a result of this review, an agreement was reached between OMB and RRB that included a 5-year management plan outlining the specific
nts and resources necessary to achieve much needed
reforms at the RRB. Both OMB and RRB are committed to many substantial reforms, and the RRB leadership is demonstrating a new and progressive approach to addressing inefficiencies, debt collection, and automation modernization. I commend the Board for its efforts and urge the Congress to support appropriations for these measures to enhance RRB efficiency, eliminate material weaknesses, and to protect the integrity of the trust funds. The RRB Inspector General’s Office also deserves praise for its diligence in monitoring and enforcing industry compliance with the pension contribution statutes. Such efforts help to preserve the integrity of the rail pension funds, on which rail employees and retirees depend.
THE WHITE HOUSE, September 11, 1991
RAILROAD RETIREMENT BOARD
1991 Annual Report for Fiscal Year Ended September 30,1990
UNITED STATES OF AMERICA Railroad Retirement Board 844 RUSH STREET CHICAGO, ILLINOIS 60611
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BOARD MEMBERS:
Glen L. Bower (Chairman)
C. J. Chamberlain (Labor)
Andrew F. Reardon (Management)
July 12,1991
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. This report, to be submitted to Congress, includes statements of the status and operations of the Railroad Retirement, Railroad Retirement Supplemental and Dual Benefits Payments Accounts, and the triennial estimate of the assets and liabilities of the railroad retirement system, as required by section 15(g) of the Railroad Retirement Act.
C. J. Chamberlain, Labor Member
Andrew F. Reard<6n, Management Member
Contents
Page
The Report in Brief ................................ 1
A Review of Operations
Railroad Retirement and Survivor Program.... 7
Medicare Enrollments ............................ 27
Unemployment and Sickness Program ............... 28
Railroad Employment ............................ 34
Recent Developments ............................... 35
Administrative Highlights.......................... 38
Legal Rulings .................................
Consolidated Financial Operations ................. 53
Eighteenth Actuarial Valuation .................... 73
RULA Financing Report .............................. 123
(Rail employee photographs in this Report were provided courtesy of the Association of American Railroads.)
The Report in Brief
• Railroad retirement and unemployment insurance benefits totaling almost $7.3 billion were paid by the Railroad Retirement Board to about one million beneficiaries during fiscal year 1990.
• The Commission on Railroad Retirement Reform issued its report on the railroad retirement system’s financing, and the Railroad Retirement Board issued its 18th actuarial valuation of the system’s assets and liabilities.
• The railroad unemployment insurance system’s debt was down to $357.4 million in 1990, and an experience rating system was initiated for determining railroad employers’ unemployment insurance contribution rates.
• The Railroad Retirement Board and the Office of Management and Budget reached an agreement calling for $14 million in additional funds to provide a series of management improvements over a 5-year period.
Benefits and Beneficiaries
Benefits paid under the Railroad Retirement Act and Railroad Unemployment Insurance Act totaled almost $7.3 billion in fiscal year 1990. Total payments were $262 million more than in fiscal year 1989. Nearly 889,000 retirement and survivor beneficiaries were on the RRB’s annuity rolls at the end of fiscal year 1990, and 55,000 railroad employees were paid unemployment/sickness benefits during the fiscal year.
Retirement and survivor benefits paid totaled $7,195 million during the fiscal year, $256 million more than in the prior year. Payments were made to approximately 951,000 beneficiaries. Employee, spouse, and divorced spouse annuitants were paid $5,357 million, accounting for 74 percent of the total payments. Employees received $3,419 million in age annuities, $849 million in disability annuities and $108 million in supplemental annuities, while spouses and divorced spouses received $980 million. Survivors were paid $1,838 million, $1,830 million in annuities and $8 million in lump-sum benefits.
Unemployment and sickness benefits paid in fiscal year 1990 totaled $95 million after adjustment for recoveries of benefit payments, some of which were made in prior fiscal years. Unemployment benefits totaling $59 million were paid to 29,000 beneficiaries during the year and sickness benefits of $36 million were paid to 28,000 beneficiaries. Total benefits increased by some $5 million from the preceding year, but beneficiaries decreased under both the unemployment and sickness programs, by 11 percent and 12 percent, respectively, in comparison to the previous year. Slightly over 2,000 claimants received both unemployment and sickness benefits.
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Program Financing
The Commission on Railroad Retirement Reform, established by 1987 budget legislation to review the long-term financing of the railroad retirement system, released its report to Congress in September 1990. Assuming that the system continues without significant structural changes, the Commission unanimously concluded that the railroad retirement system is financially sound in the intermediate term and will not experience cash-flow difficulties during the next 20 to 25 years. While the long-term financial viability of the system was less certain, the Commission concluded that it is quite probable it is financially sound over the next 75 years.
At the end of fiscal year 1990, the equity balance of the Railroad Retirement Account was $9,918.5 million, with revenues exceeding expenditures by $806.1 million. The RRB’s eighteenth triennial actuarial valuation, reprinted at the back of this Report, projects income and outgo under four sets of assumptions.
Annual railroad unemployment insurance financial reports made to Congress in recent years have been favorable, stating that experience-based contribution rates will keep the system solvent, even under the most pessimistic employment assumptions.
Legislation
November 1990 Federal budget legislation extended for 2 years, through fiscal year 1992, the time during which revenues from Federal income taxes on railroad retirement benefits exceeding social security levels may be transferred to the Railroad Retirement Account for use in paying benefits. The budget law also increased the maximum compensation subject to Medicare hospital insurance payroll tax, made some changes in Medicare costs and coverage, and permanently exempted supplemental annuities from reduction under the Gramm/Rudman Act.
Experience Rating
The first phase of a new unemployment insurance experience rating system was successfully effected in January 1990. The system determines railroad employers’ individual contribution rates to the unemployment and sickness insurance program on the basis of benefits paid to each railroad’s employees. Required by 1988 legislation, the system is being phased in over a 3-year period and will be fully effective in 1993.
2
New Board Member
On October 15,1990, the Senate confirmed President Bush’s appointment of Andrew F. Reardon as Management Member of the Railroad Retirement Board to complete a term ending in August 1993. Mr. Reardon had been Senior Vice President of Law and Real Estate for the Illinois Central Railroad Company since 1985.
Glen L. Bower continues to serve as Chairman of the Board and Charles J. Chamberlain continues to serve as Labor Member.
Management Review
During 1990, the Railroad Retirement Board and the White House Office of Management and Budget cooperated in a detailed review of the railroad retirement system’s administrative operations and subsequently agreed on a funding proposal of $14 million to supplement existing RRB resources for administrative operations and to protect the integrity of the railroad retirement and unemployment insurance trust funds.
With this commitment of funds, the RRB plans to reduce backlogs without compromising accuracy, enhance debt collection activities with new initiatives, expand electronic fraud control activities, and ensure the accuracy of statements issued to beneficiaries for income tax purposes. Cost effectiveness will be the primary criterion for the expenditure of these additional funds, so that the investment will yield significant operational improvements.
Management Controls
The RRB placed high priority on program integrity activities such as investigating uncashed checks, monitoring earnings, and matching payroll records with railroads and States; and the RRB was among the most successful of the Federal agencies participating in the Federal income tax refund offset program. High priority was also placed on improving tax accounting and upgrading computer equipment.
The RRB’s Office of Inspector General continued to provide comprehensive audit and investigative coverage of RRB programs, issuing 40 reports with actual and potential monetary benefits exceeding $26.5 million in fiscal year 1990, as well as 101 convictions, the highest annual level since that office was established.
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Selected Data on Benefit Operations
RETIREMENT-SUR VIVOR Employee age annuities: Number awarded N umber being paid at end of period Average being paid at end of period Fiscal year 1990 14,500 316,000 $909 Fiscal year 1989 16,400 321,400 $860
Employee disability annuities:
Number of total disability annuities
awarded 1,300 1,200
Number of occupational disability annuities awarded 3,200 3,300
Number of total disability annuities being paid at end of period ....... Number of occupational disability annuities being paid at end of period . 21,400 21,500
58,600 59,500
Average total disability annuity being paid at end of period $515 $476
Average occupational disability annuity being paid at end of period $999 $932
Supplemental employee annuities:
Number awarded 8,700 9,500
N umber being paid at end of period 194,600 197,600
Average being paid at end of period ^$45 $46
Spouse and divorced spouse annuities:
Number awarded, total 17,000 19,600
Number being paid to divorced spouses at end of period 2,900 2,600
N umber being paid at end of period, total . . 218,500 220,500
Average being paid to divorced spouses at end of period $220 $207
Average being paid at end of period, total .. $372 $355
Survivor annuities:
Number awarded to aged widow(er)s 12,800 13,500
Number awarded, total 16,000 16,600
Number being paid to aged widow(er)s at end of period 246,900 253,300
Number being paid at end of period, total .. 285,000 291,100
Average being paid at end of period to:
Aged widow(er)s $546 $521
Disabled widow(er)s $501 $480
Widowed mothers (fathers) $554 $526
Remarried widow(er)s $350 $328
Divorced widow(er)s $383 $360
Children $487 $465
Lump-sum survivor benefits awarded:
Number of lump-sum death benefits 8,000 8,200
Average lump-sum death benefit $850 $842
N umber of residual payments 300 300
Average residual payment $4,982 $5,113
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Selected Data on Benefit Operations (Cont’d.)
EMPLOYEES AND EARNINGS2 Fiscal year 1990 Fiscal year 1989
Average employment 299,000 310,000
Taxable earnings, Railroad
Retirement Act (billions):
Tier I $11.25 $11.46
Tier II $10.15 $10.36
Taxable compensation, Railroad
Unemployment Insurance Act
(billions) $2.73 $2.68
UNEMPLOYMENT-SICKNESS Benefit year Benefit year
1990 1989
Qualified employees 348,600 366,400
Unemployment benefits:
Amount paid (millions) $57.2 3($59.0) $60.8
Beneficiaries 29,900 3(29,400) 35,200
Number of payments 230,900 258,200
Normal benefit accounts exhausted 5,600 6,600
Average payment per 2-week registration period $256.63 $247.44
Sickness benefits:
Amount paid (millions) $32.6 3($35.7) $32.1
Beneficiaries 28,200 3(27,600) 33,700
N umber of payments 208,700 245,000
Normal benefit accounts exhausted 6,100 7,600
Average payment per 2-week registration period $286.81 $271.35
1 Reflects 0.7 percent reduction under the Gramm/Rudman Act. Supplemental annuities awarded under the 1974 Act, which averaged $41, constituted 83 percent of all supplemental annuities being paid, up from 81 percent a year earlier. 2Except for fiscal year 1989 employment, all figures in this section are preliminary. 3Data in parentheses are for the fiscal year (October 1,1989 - September 30,1990).
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Service
The RRB’s first client satisfaction survey showed that 88 percent of the respondents rated RRB service as good to very good, and 68 percent rated RRB service as better than other Government agencies.
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A Review of Operations
Railroad Retirement and Survivor Program
Financial Operations
Funds for railroad retirement and survivor benefits are held in four accounts. The Social Security Equivalent Benefit 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 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 Account and the Railroad Retirement Supplemental Account, respectively. The four accounts together incurred $7,235.9 million in benefits (excluding $943.2 million in social security benefits) during fiscal year 1990. Revenue to the accounts exceeded expenditures by $806.1 million, and the combined equity balance was $9,918.5 million at the end of fiscal year 1990.
Railroad Retirement Account
The equity balance in the Railroad Retirement (RR) Account at the end of fiscal year 1990 (September 30, 1990) was $9,052.2 million and included $357.4 million in loans and interest receivable from the Railroad Unemployment Insurance (RUI) Account. The RR Account equity balance increased by $552.4 million during the fiscal year.
Revenue to the RR Account during fiscal year 1990 totaled $4,161.8 million. Payroll taxes amounted to $2,180.9 million, 52.4 percent of total income and $135.1 million less than in fiscal year 1989. Federal income tax transfers netted $181 million during the year, after adjustments totaling $1 million for the 1984 through 1986 IRS income tax reconciliation.
Funds amounting to $943.2 million during the fiscal year were transferred to the RR Account from Social Security Trust Funds to cover RRB 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.
All financial information (except when the term "paid” or "collected” is used) for fiscal years 1989 and 1990 is presented on the accrual basis of accounting instead of the cash basis of accounting. However, benefit operations data presented on pages 16-27 for the railroad retirement and survivor program and pages 31 -34 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.
Restatements have been made in the fiscal year 1989 financial statements to conform to the 1990 presentation.
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Railroad Retirement Account Statement of Operations and Changes in Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1990 1989
Financing Sources
Revenue -
Social Security Administration (SSA)
reimbursement $ 943.2 $ 894.0
Payroll taxes 2,180.9 2,316.0
Federal income tax transfers 181.0 76.0
Railroad unemployment repayment
taxes 114.7 79.1
Interest on investments and other
income „.... 701.7 707.3
Interest on Railroad Unemployment
Insurance (RUI) Account loan .... 40.3 55.7
Total financing sources $ 4,161.8 $ 4,128.1
Expenditures
Benefit payments $ 2,540.3 $ 2,479.4
Benefits paid on behalf of SSA 943.2 894.0
Cash transferred for salaries
and expenses 32.4 32.6
Total expenditures $ 3,515.9 $ 3,406.0
Net Results $ 645.9 $ 722.1
Equity balance at beginning of year .... 8,499.8 7,840.5
Reduction of loan and interest receivable -
RUI Account (112.5) (62.8)
Prior period adjustments 19.0 0.0
Equity Balance at End of Year $ 9,052.2 $ 8,499.8
Revenue also included loan interest from the RUI Account of $40.3 million and RUI repayment taxes of $114.7 million from railroad employers. Loan and interest receivables were reduced by actual tax receipts of $112.5 million. Investment and other income for the year was
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$701.7 million, $5.6 million less than the prior year’s earnings. The 1990 earnings, however, were net of interest on carriers’ refunds of $43.4 million. The average yield on all holdings of the RR Account for fiscal year 1990 was 9.40 percent.
Expenditures from the RR Account during fiscal year 1990 totaled $3,515.9 million. Railroad retirement benefit payments of $2,540.3 million accounted for 72.3 percent of the expenditures. Other expenditures included payments of $943.2 million in social security benefits to railroad families and $32.4 million for administrative expenses ($30.9 million for the railroad retirement and survivor program and $1.5 million for the Office of Inspector General).
Social Security Equivalent Benefit Account
The Social Security Equivalent Benefit (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 (FI) transfers from the Social Security Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds, and interest on investments.
The FI 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. This involves computing the amount of social security taxes that would have been collected on railroad employment and computing the amount of additional benefits which social security would have paid to railroad retirement beneficiaries during the same fiscal year. In the computation of the latter amount, credit is given for any social security benefits actually paid to railroad retirement beneficiaries. When benefit reimbursements exceed payroll taxes, the difference, with an allowance for interest and administrative expenses, is transferred from the Social Security Trust Funds to the Railroad Retirement Account. If taxes exceed benefit reimbursements (this has not happened since 1951), a transfer would be made in favor of the social security trust funds.
The net FI transfer from the OASDI and HI Trust Funds of $2,880.8 million represents the estimated amount of $3,237.1 million due from the OASDI Trust Funds less the estimated amount of $356.3 million ($322.9 million principal and $33.4 million interest) due to the HI Trust Fund. These amounts include estimates of amounts due but unpaid at the end of fiscal year 1990 and actual interest for the period October 1,1989, through the date of the transfers, June 4,1990, on amounts due but unpaid at the end of fiscal year 1989. Actual determination and settlement of the amounts due at the end of fiscal year 1990 will be made in June 1991. In fiscal year 1990, $3,049.1 million was transferred to the SSEB Account from the OASDI Trust Funds, and $367.4 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 1989 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
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Social Security Equivalent Benefit Account Statement of Operations and Changes in Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1990 1989
Financing Sources
Revenue -
Financial Interchange (FI) transfers . . Payroll taxes Federal income tax transfers Interest on investments and other income $ 2,880.8 1,719.3 35.0 62.9 $ 2,684.7 1,777.2 18.0 54.0
Total financing sources $ 4,698.0 $ 4,533.9
Expenditures
Benefit payments Cash transferred for salaries and expenses Interest expense - FI $ 4,247.3 31.4 257.7 $ 3,993.4 27.3 244.4
Total expenditures $ 4,536.4 $ 4,265.1
Net Results Equity balance at beginning of year Prior period adjustments $ 161.6 677.2 (19.0) $ 268.8 408.4 0.0
Equity Balance at End of Year $ 819.8 $ 677.2
transfers represent the actual amounts due in fiscal year 1989 plus interest amounts due to the date of the transfers, June 4, 1990.
Each month, the RRB determines the amount and direction of the SSA/RRB FI transfer. If the determination favors the SSEB Account, as it did throughout fiscal year 1990, 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. FI advances received in a fiscal year are repaid the following year when the FI transfers occur. Advances made during fiscal year 1990 totaled $2,577.4 million, including interest. FI advances received for fiscal year 1989 were repaid to the U.S. Treasury on June 4, 1990, when the FI transfers occurred. The total repayment was over $2,755.9 million, consisting of $2,499.4 million in principal and $256.5 million in interest.
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Other revenue to the SSEB Account in fiscal year 1990 included payroll taxes amounting to $1,719.3 million, which was $57.9 million, or 3.3 percent, less than in fiscal year 1989. Net income tax transfers, after an IRS adjustment of $4 million for the 1984 through 1986 reconciliation, were $35 million. Investment and other income totaled $62.9 million, $8.9 million more than in the previous year. The average yield on all holdings of the SSEB Account for fiscal year 1990 was 8.45 percent. Total revenue to the account during the fiscal year was $4,698 million.
Expenditures from the SSEB Account totaled $4,536.4 million in fiscal year 1990. Benefit payments amounted to $4,247.3 million, 93.6 percent of total expenditures. Administrative expenditures during the year totaled $31.4 million ($30 million for the railroad retirement and survivor program and $1.4 million for the Office of Inspector General). Interest expense during fiscal year 1990 on FI advances amounted to $257.7 million. As of September 30,1990, the equity balance in the SSEB Account was $819.8 million, $142.6 million more than at the beginning of the year.
Dual Benefits Payments Account
The Dual Benefits Payments (DBP) 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 funds appropriated for the year totaled $340 million, which includes Federal income tax transfers of $19 million. Payments amounted to $339.8 million in the fiscal year, with the year-end balance of $0.2 million (including a small amount of uncashed check charges) being returned to the U.S. Treasury, as required by law.
Dual Benefits Payments Account Statement of Operations (In millions)
For the Fiscal Year Ended September 30, 1990 1989
Financing Sources Appropriations Returned to the general fund of the U.S. Treasury Federal income tax transfers $ 321.0 (0.2) 19.0 $ 324.7 (4.8) 26.0
Total financing sources $ 339.8 $ 345.9
Expenditures Benefits $ 339.8 $ 345.9
Total expenditures $ 339.8 $ 345.9
Net Results .......................
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Railroad Retirement Supplemental Account
Revenue to the Railroad Retirement Supplemental (RRS) Account in fiscal year 1990 totaled $109.3 million, including $105.6 million in employer taxes and $3.7 million in interest on investments and other income. The yield on all holdings of the RRS Account for fiscal year 1990 was 8.45 percent.
Expenditures of the RRS Account totaled $110.7 million, with $108.5 million in supplemental annuity payments and $2.2 million in administrative expenses ($2.1 million for the railroad retirement and survivor program and $0.1 million for the Office of Inspector General). Benefit payments were $3.4 million less than in the prior year. The equity balance in the RRS Account decreased by $1.4 million over the year to $46.5 million as of September 30,1990.
Railroad Retirement Supplemental Account Statement of Operations and Changes iniquity Balance (In millions)
For the Fiscal Year Ended September 30, 1990 1989
Financing Sources Revenue -Supplemental taxes Interest on investments and other income $ 105.6 3.7 $ 111.9 3.6
Total financing sources $ 109.3 $ 115.5
Expenditures
Benefit payments Cash transferred for salaries and expenses $ 108.5 2.2 $ 111.9 2.2
Total expenditures $ 110.7 $ 114.1
Net Results (Deficit) Equity balance at beginning of year $ (1.4) 47.9 $ 1.4 46.5
Equity Balance at End of Year $ 46.5 $ 47.9
Railroad Retirement Administration Fund
The equity balance of the Railroad Retirement (RR) Administration Fund was $11.4 million at the end of fiscal year 1990, $3.6 million more than at the start of the fiscal year. Most of this increase ($2.8 million) is attributable to the capitalization of computer software acquired in prior years. Funds appropriated to the Railroad Retirement Board for fiscal year 1990 were $3.4 million more than for fiscal year 1989. Of the $63 million appropriated to this account for fiscal year 1990, the RR Account contributed $30.9 million, the
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SSEB Account contributed $30 million and the RRS Account contributed $2.1 million towards salaries and expenses.
Revenue for the fund during fiscal year 1990 included a $4.3 million reimbursement from the Health Care Financing Administration for administrative expenses associated with the Medicare Part B program.
Expenditures from the RR Administration Fund for salaries and expenses during fiscal year 1990 amounted to $66.5 million, $3.4 million more than in the prior year. Of the total revenues of $9,308.9 million for the RR, SSEB, RRS and DBP Accounts, seven-tenths of one cent on the dollar was expended to administer the railroad retirement and survivor program.
Railroad Retirement Administration Fund Statement of Operations and Changes in Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1990 1989
Financing Sources Appropriations Revenue - Health Care Financing Administration . $ 63.0 4.3 $ 59.6 4.0
Total financing sources $ 67.3 $ 63.6
Expenditures Salaries and expenses $ 66.5 $ 63.1
Total expenditures $ 66.5 $ 63.1
Net Results $ 0.8 $ 0 5
Equity balance at beginning of year 7.8 4.1
Prior period adjustment 2.8 3.2
Equity Balance at End of Year $ 11.4 $ 7.8
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 1992 tier II benefits and the portion of tier I benefits in excess of social security equivalent benefits is transferred to the Railroad Retirement Account. Omnibus Budget Reconciliation Acts extended the transfer of these revenues beyond fiscal year 1989, at first through fiscal year 1990 (Act of 1989, P.L. 101-239) and then through fiscal year 1992 (Act of 1990, P.L. 101-508). The revenue derived from taxing preOctober 1988 vested dual benefits was also transferred to the RR Account.
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Revenue from taxing vested dual benefits 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 DBP 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 for taxable years through 1990, including reconciliation adjustments through 1988:
Federal Income Tax Transfers by Recipient Account and Benefit Component, Taxable Years 1984-90 (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 12 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
1989 36 4177 20
1990 39 5184 19
Adjustments6
1984 -7 -25 -104 -34
1985 -37 -7 -30 -1
1986 -40 -62 -5
1987 -18 -105 -13
1988 -9 -90 -6 -3
'Established October 1,1984; receives taxes on social security equivalent benefit (SSEB) portion of tier I. 2Non-SSEB portion of tier I, beginning 1986. 3Receives taxes on vested dual benefit component beginning October 1, 1988. 4lncludes$44 million for October-December 1989 transferred in January 1990 following passage of P.L. 101-239. 5Includes $46 million for October-December 1990 transferred in January 1991 following passage of P.L. 101-508. 6U.S. Treasury adjustments for reconciliations: 1984 and 1985 reconciliations made in 1987; reconciliations for 1986 and 1987 made in 1988 and 1989, respectively; 1988 reconciliation made in 1990 (SSEB Account, RR Account vested dual benefit, and DBP Account) and 1991 (RR Account tier I and tier ID. Adjustments also include transfers made in January 1991 for taxes on benefits to nonresident aliens, and special adjustments for tier I taxes made in 1989 for 1984 (-$1 million to RR Account), 1985 and 1986 (-$2 million to SSEB Account for each year).
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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 RRB can purchase two types of special issues, par value specials and marketbased specials. A market-based special may be any marketable Treasury bill, note or bond, except that notes and bonds within 6 months of maturity are not currently available to the RRB. 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 3 years away.
On September 30,1990, the market value of the RR Account investments totaled $8,911,222,573. Of this amount, $4,511,045,000 consisted of 8.625 percent par value specials maturing October 1, 1990. The remaining $4,400,177,573 in the RR Account was invested in market-based notes and bonds maturing at dates varying from July 15,1991, to November 15, 2004, and yields ranging from 8.20 percent to 12.52 percent. The book value of these securities at September 30,1990, was $8,651,345,468, 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 1990 was 9.4 percent.
On September 30,1990, the SSEB Account investments totaled $867,368,000. The entire amount was invested in 8.625 percent par value specials maturing on October 1,1990. The yield on all holdings of the SSEB Account for fiscal year 1990 was 8.45 percent.
On September 30,1990, the RRS Account investments totaled $47,005,000. The entire amount was invested in 8.625 percent par value specials maturing on October 1,1990. The yield on all holdings of the RRS Account for fiscal year 1990 was 8.45 percent.
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Benefit Operations
Retirement and survivor benefits paid, including vested dual benefits and supplemental employee annuities, totaled $7,195 million in fiscal year 1990, $256 million more than in fiscal year 1989. Approximately $225 million of this increase was due to cost-of-living adjustments effective December 1988 and December 1989. The following table presents retirement and survivor benefit payments for fiscal years 1990 and 1989, by type of benefit, and the percent changes in payments between the 2 years:
Amount (in millions)
Type of benefit
Fiscal year Fiscal year
1990 1989
Percent change
Retirement benefits
Employee annuities
Age $ 3,419.3 $ 3,290.9 + 3.9
Disability 849.2 795.2 + 6.8
Supplemental 108.0 111.8 -3.4
Spouse and divorced
spouse annuities 980.4 942.9 + 4.0
Total $ 5,357.0 $ 5,140.9 + 4.2
Survivor benefits
Annuities $ 1,829.6 $ 1,789.5 + 2.2
Lump-sum benefits 8.0 8.1 -1.6
Total $ 1,837.6 $ 1,797.6 + 2.2
Grand total $ 7,194.6 $ 6,938.6 + 3.7
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 1988, tier I portions increased by 4.0 percent while tier II portions increased by 1.3 percent. Increases of 4.7 percent for tier I and 1.5 percent for tier II were effective December 1989.
Monthly retirement and survivor benefits being paid numbered approximately 1,094,000 at the end of fiscal year 1990, nearly 18,000 less than at the end of the prior year. Monthly beneficiaries on the rolls declined by about 15,000 over the year, from 904,000 to 889,000. The number of monthly benefits paid is always greater than the number of 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.
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Regular employee annuities in payment status at the end of fiscal year 1990 numbered 396,000, some 6,000 less than at the end of the previous fiscal year. The number of age annuities being paid dropped by 5,000 over the year to 316,000, while disability annuities declined by 1,000 to 80,000. Supplemental annuities dropped by 3,000, numbering 195,000 at the end of the year. While the number of divorced spouse annuities being paid increased slightly over the year, spouse and divorced spouse annuities together dropped by 2,000, totaling over 218,000 at year-end. Some 285,000 monthly survivor benefits were being paid at the end of fiscal year 1990, a decrease of 6,000 from the previous year.
Retirement
Regular employee annuities.--Nearly 19,000 regular employee annuities were awarded in fiscal year 1990,1,900 fewer than in fiscal year 1989. Data by type of annuity awarded during the year are given below.
Employee annuities Average
awarded in fiscal year 1990 Number Percent Annuity Years of Age at amount service retire-
ment
Age
Beginning at age 65
or over 2,800 15 $ 669 19.4 67.0
Unreduced, beginning
at ages 60-64 4,300 23 1,554 38.7 62.4
Reduced, beginning
at ages 60-64 7,400 39 927 25.8 61.9
Disability 4,500 24 1,188 24.4 53.5
Total 19,000 100 $1,092 27.4 60.8
Note.--Detail may not add to total due to rounding.
Full-rate age annuities are awarded to employees who are age 65 or older at retirement (normal age retirees). Annuities are also payable to employees retiring at ages 60-64 with 30 or more years of railroad service, called 60/30 retirees. Reductions are applied to the tier I portions of these annuities that begin before age 62, unless the employee attained age 60 and completed 30 years of service before July 1984. The tier I benefit amount of a reduced 60/30 annuity is reduced by 10 percent if eligibility was attained between July 1,1984, and December 31,1985, or 20 percent if eligibility was 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 aged 62-64 with less than 30 years of railroad service equal 1/180 of the full annuity amount for each month the employee is under age 65 when the annuity begins.
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Number of monthly beneficiaries, September 30,1985, and 1990 (Thousands)
' .. v .....„ . . ■■ j-,,
500
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Reduced age annuities awarded during fiscal year 1990 included 3,200 reduced 60/30 awards and 4,100 awards where the employee had less than 30 years of service. Average annuity amounts for the two groups were $1,344 and $600, respectively, while railroad service averaged 37 years and 17 years.
Disability awards are based either on total disability or on occupational disability. A total disability annuity is based on disability for all employment and is payable at any age to employees with at least 10 years of railroad service. An employee is considered totally disabled if medical evidence shows that a permanent physical or mental condition exists which prevents the performance of any regular work. A condition is considered to be permanent if it has lasted or may be expected to last for at least 12 months. An occupational disability annuity is based on disability for the employee’s regular railroad occupation and is payable to employees with a current connection with the rail industry at ages 60-64 if the employee has 10 years of service, or at any age if the employee has at least 20 years of service. An employee is considered occupationally disabled if the physical or mental condition is such that the employee is permanently disabled for work in his or her regular railroad occupation, even though the employee may be able to perform other kinds of work.
Of the year’s 4,500 disability awards, 1,300 averaging $778 were for total disability and 3,200 averaging $1,357 were for occupational disability. However, many employees who are disabled for all employment are initially awarded occupational disability annuities in order to expedite payment, as medical standards for occupational disability are less stringent. The 4,500 disability awards added approximately $5.4 million in monthly benefit payments.
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 period are excluded in computing an employee’s tier I annuity amount, usually resulting in a higher benefit. Also, an employee may benefit from income tax savings and may qualify for early Medicare coverage if granted a disability freeze.
Fifty-seven percent (10,800) of the employees who were awarded regular annuities in fiscal year 1990 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 2 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. Awards based on immediate retirement averaged $1,434, compared to an average of $639 for the 8,200 awards based on deferred retirement. Immediate retirees averaged 33 years of railroad service, considerably more than the average of 20 years for deferred retirees. Of the year’s awards, immediate retirements accounted for 27 percent of normal age retirements. Eighty percent of all 60/30 retirements were immediate, compared to only 15 percent for the reduced age awards excluding 60/30’s. Three-fourths of the disability awards were based on immediate retirement.
The 396,000 retired employees on the rolls as of September 30, 1990, were being paid regular annuities averaging $901 The table on the next page gives data by type of annuity for these benefits.
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Employee annuities in current-payment status on September 30,1990 Number Percent Average amount Percent immediate retirements
Age Beginning at age 65 or over 90,600 127,300 98,100 23 $ 689 67
Unreduced, beginning at ages 60-64 Reduced, beginning at ages 60-o4 32 25 1,227 701 95 42
Disability 80,000 20 869 76
Total 396,000 100 $ 901 72
Note.--Detail may not add to total du# to rounding.
Of the 80,000 disability annuities being paid, 21,000 were for total disability and 59,000 for occupational disability. The two types of disability annuities averaged $515 and $999, respectively. In fiscal year 1990, about $132 million was paid in total disability annuities and $717 million in occupational disability annuities.
Some 284,000 employees on the rolls were immediate retirees and their annuities averaged $1,086. Annuities of the remaining 112,000 deferred retirees averaged $430. Although their average railroad retirement annuity was much lower, a greater proportion of the deferred annuitants also received social security benefits-61 percent compared to 17 percent for the immediate retirees. Moreover, the average social security benefit paid to deferred retirees was higher than that paid to immediate retirees. Combined railroad retirement and social security benefits to deferred retirees who were dual beneficiaries averaged $770, while combined benefits to immediate retirees averaged $981. The table on the next page 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.
Regular employee annuities consist of as many as three components: tier I, tier II, and the vested dual benefit. Reductions for early age 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, and 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 1990 averaged $766. Tier I amounts of approximately 13,000 employees were completely offset by social security benefits. The remaining employees received net tier I amounts averaging $630.
The tier II component is based solely on railroad earnings. Tier II amounts being paid at the end of fiscal year 1990 averaged $254. 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 an earlier year of last railroad service. About 140,000 retirees were receiving vested dual benefits averaging $139 at the end of the year.
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Type of retirement
Dual-benefit status Total Immediate Deferred
Receiving social security benefit
Number 117,800 49,500 68,300
Average monthly amount: Railroad retirement (regular) $ 401 $ 661 $ 212
Social security 458 320 558
Combined benefit $ 859 $ 981 $ 770
Not receiving social security benefit
Number 278,300 235,000 43,300
Average monthly amount ... $ 1,113 $ 1,175 $ 775
Note.--Detail may not add to total due to rounding.
Supplemental employee annuities.-Supplemental annuity awards numbered 8,700 in fiscal year 1990, 800 fewer than in fiscal year 1989. Over 6,400 of the awards (74 percent) began concurrently with the employee’s regular annuity, while the remaining 2,300 were to employees already receiving a regular annuity. Supplemental annuity awards averaged about $41. Award amounts were reduced by 29 cents on the average due to the 0.7 percent reduction applied during the year to supplemental annuities under the Gramm/Rudman Act.
Supplemental annuities are reduced for any part of a private railroad pension attributable to employer contributions. About 2,100 supplemental annuities were entirely offset by private pensions during the fiscal year. Fewer than 100 of the year’s 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.
Nearly 195,000, or 49 percent, of the retired employees on the rolls at the end of the 1990 fiscal year were being paid supplemental annuities, which averaged $45. Gramm/Rudman reductions for these annuities averaged 32 cents.
Spouse and divorced spouse annuities.-Annuity awards to spouses and divorced spouses of retired employees numbered 17,000 in fiscal year 1990, some 2,500 less than in the previous year. The table shown on the following page presents numbers and average amounts of spouse and divorced spouse annuities awarded during the year and being paid at the end of the year, by type of annuity.
When a 60/30 employee annuity is subject to a tier I age reduction, the reduction also affects the spouse annuity award. In such cases, the spouse
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Type of annuity Awarded in fiscal year 1990 In current-payment status on September 30,1990
Number Average amount Number Average amount
Spouse annuities
Beginning at age 65
or over 3,500 $ 184 40,100 $ 227
With minor or disabled
child in care 600 412 2,300 454
Unreduced, beginning
at ages 60-64 5,100 576 97,200 518
Reduced rate 7,300 356 75,900 266
Total 16,500 $ 390 215,600 $ 374
Divorced spouse
annuities 600 $ 229 2,900 $ 220
Grand total 17,000 $ 385 218,500 $ 372
Note.--Detail may not add to total due to rounding.
tier I benefit is equal to one half of the employee’s reduced tier I amount. The spouse’s tier I amount is recomputed to reflect the employee’s tier I recomputation when both the employee and spouse are age 62. If the employee retired with less than 30 years of railroad service, spouse annuities beginning at ages 62-64 are reduced by 1/144 for each month the spouse was under age 65 when the annuity began. This reduction applies also to the annuities of divorced spouses ages 62-64, regardless of the employee’s length of service. Of the 7,300 reduced spouse annuities awarded in fiscal year 1990, 3,300 averaging $549 were to spouses of 30-year employees and 4,000 averaging $197 were to spouses of employees with under 30 years of service.
The more than 218,000 spouse and divorced spouse annuities being paid at the end of fiscal year 1990 averaged $372. Families with an employee and spouse on the rolls were paid combined railroad retirement benefits averaging $1,368. This included $994 in regular and supplemental employee annuities and $374 in spouse annuities.
Nearly 105,000, or 48 percent, of the spouses and divorced spouses on the rolls were also receiving social security benefits. Combined railroad retirement and social security benefits to these annuitants averaged $564, including $372 in social security benefits and $192 in railroad retirement benefits. Railroad retirement annuities to spouses and divorced spouses not receiving social security benefits averaged $538.
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
22
'Without supplemental annuity. 2lncludes divorced spouses.
'Includes $120.6 million in fiscal year 1985 and $108.0 million in fiscal year 1990 for supplemental annuities, ^includes divorced spouses.
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be reduced for a public service pension. The tier I portion may also be reduced if the spouse receives a railroad retirement employee annuity, but this reduction is usually restored through an addition to 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 precluded further awards of spouse vested dual benefits.
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 is subject to a minimum of $ 1,200. Reductions required by this maximum are made, as necessary, in the following order: spouse tier II component, supplemental employee annuity, employee tier II component. Tier I amounts cannot be reduced for the railroad maximum.
Of the 218,000 spouses and divorced spouses on the rolls at the end of the fiscal year, 165,000 were being paid tier I amounts averaging $297. Tier I amounts for the remaining spouses were completely offset by other benefits also due. Spouse tier II amounts averaged $130. In 13,000 cases, the tier II component was reduced an average of $61 for the railroad maximum. Vested dual benefits averaging $103 were being paid to 56,000 spouses.
Survivor
Monthly benefits.- Annuity awards to survivors of deceased railroad employees numbered 16,000 during the 1990 fiscal year, 600 less than in the previous year. Some 285,000 survivor annuities were being paid at the end of fiscal year 1990, including 2,400 temporarily paid as spouse or divorced spouse annuities pending conversion to a widow(er)’s annuity. The table on the next page 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. Most of the 40-odd survivor option annuities, which were being paid under laws in effect before August 1946, were to widows also receiving aged widows’ annuities.
Survivor annuities, like regular employee and spouse annuities, consist of as many as three components: tier I, tier II and, for widows and widowers only, a vested dual benefit. As with spouses, legislation in 1981 precluded new awards of vested dual benefits to widow(er)s.
The tier I component is computed according to social security formulas and is based on the deceased employee’s combined railroad and social security earnings. A 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 another family member is also receiving benefits or if the parentrhas remarried.
Survivor tier II amounts for awards since October 1986 are figured as a percentage 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 survivor tier II amounts are proportionately adjusted when either limit applies. Widows and widowers are guaranteed a total tier I and tier II amount at least as great as what they were paid as a spouse, any necessary increase being added to tier II.
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Type of annuity Awarded in fiscal year 1990 In current-payment status on September 30,1990
Number Average amount Number Average amount
Aged widow(er)s’ 12,800 $ 620 246,900 $ 546
Disabled widow(er)s’ ... 300 575 7,200 501
Widowed mothers’
(fathers’) 300 579 2,100 554
Remarried widow(er)s’ . 600 408 5,600 350
Divorced widow(er)s’ ... 800 420 6,700 383
Children’s:
Under age 18 800 575 4,900 583
Student 100 520 200 599
Disabled 300 474 11,200 444
Parents’ (0 406 100 438
Survivor option (1) 84
Total 16,000 285,000
iFewer than 50.
Note.--Detail may not add to total due to rounding
Annuities being paid at the end of fiscal year 1990 to aged widows and widowers numbered nearly 247,000, accounting for 87 percent of the survivor annuities. Aged widow(er)s who begin receiving benefits at ages 60-64 have their tier 1 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. Approximately 107,000 aged widow(er)s’ annuities were being paid at reduced rates. Aged widow(er)s’ tier I amounts being paid averaged $459. In 22,000 cases, the tier I amount was wholly offset by reductions for other benefits. About 118,000 aged widow(er)s were receiving social security benefits averaging $392. Tier II amounts averaged $121, and 32,000 vested dual benefits averaging $53 were being paid.
The tier I and tier II amounts of disabled widow(er)s’ annuities, which begin at ages 50-59, are reduced 28-1/2 percent for age. Tier I amounts being paid to disabled widow(er)s on the rolls at the end of the 1990 fiscal year averaged $415 (in 500 cases, the tier I amount was wholly offset by reductions). Almost 2,100 disabled widow(er)s received social security benefits averaging $379. Tier II amounts averaged $ 104, while the 1,200 vested dual benefits being paid averaged $70.
Tier I amounts paid to widowed mothers and fathers (widows and widowers caring for children) generally equal 75 percent of the full amount
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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 tier I amounts are proportionately reduced so that the total equals the maximum. Reductions for the family maximum usually occur when the family includes three or more beneficiaries. Tier I amounts being paid as of the end of fiscal year 1990 averaged $523 for widowed mothers and fathers and $425 for children. Fewer than 50 mothers (fathers) and about 2,500 children received social security benefits averaging $407 and $280, respectively. Tier II amounts paid mothers (fathers) and children averaged, respectively, $128 and $72. Very few widowed mothers received vested dual benefits and these averaged $92.
Lump-sum benefits—Two types of lump-sum benefits are payable to survivors of deceased railroad employees, 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. 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 8,000 lump-sum death benefits were awarded during fiscal year 1990, including about 50 deferred payments. Benefits paid at the time of death, which averaged $850, included 1,000 to widow(er)s and 6,900 to other individuals who paid the funeral expenses, mostly adult children of the employee. If the employee completed 10 years of service after 1974, only the widow or widower is eligible for the lump-sum benefit.
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 RRB or the Social Security Administration. A widow, widower 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.
Nearly 300 residual payments averaging $4,982 were awarded in the 1990 fiscal year. Widow(er)s and parents who elected to waive future monthly benefits received fewer than 100 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 and are not entitled to a vested dual benefit may be eligible for a dual retirement tax refund if they had concurrent railroad retirement and social security earnings
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within the period 1951-74. 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 1990 fiscal year, the RRB paid about 4,700 dual retirement tax refunds averaging $69. Most of the payments were to employees retiring during the year. About 50 refunds were 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.
Railroad retirement amendments enacted in 1988 provided for a lump-sum benefit payable at retirement to employees who received separation or severance payments after 1984. The benefit represents a repayment of tier II payroll taxes deducted from separation or severance payments that did not yield additional service credits for retirement. The first separation/severance lump-sum payments were made in November 1989, and a total of $4.6 million was paid to about 7,300 employees during the fiscal year.
Medicare Enrollments
The Medicare program provides health insurance to persons aged 65 and older, as well as persons under age 65 who have been entitled to monthly benefits based on total disability for at least 24 months or who suffer from chronic kidney disease requiring hemodialysis or transplant. In addition to the basic hospital insurance, or Part A, plan, which is financed through payroll taxes, there is an elective supplementary medical insurance, or Part B, plan for which monthly premiums are charged.
Eligible railroad retirement annuitants and social security beneficiaries whose benefits are payable by the RRB are automatically enrolled under both plans, but Part B may be declined. Eligible nonretired persons must apply in order to obtain Medicare coverage. The RRB automatically enrolled nearly 40,000 beneficiaries for Medicare during fiscal year 1990. As of the end of the fiscal year, 785,000 persons were enrolled in the Part A plan, and 769,000 (98 percent) of them were also enrolled for Part B.
Except for benefits for services in Canada, which are paid from the Railroad Retirement Account, railroad enrollees are paid Part A benefits from the Federal Hospital Insurance Trust Fund, the same as persons covered under the social security system. Part B benefits are paid from the Federal Supplementary Medical Insurance (SMI) Trust Funds.
The Travelers Insurance Company, the carrier for Part B claims of railroad Medicare enrollees, made payments totaling $692 million in the 1990 fiscal year. These payments included $672 million to claimants aged 65 or older and $20 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 1990 was $27.90 for coverage through December 1989 and $28.60 thereafter. An additional monthly premium of $4 was paid for catastrophic coverage in 1989; catastrophic coverage legislation was repealed in December 1989. The RRB generally withholds Medicare premiums for annuitants from their benefit checks. At the end of the fiscal year, 740,000 annuitants were having their premiums withheld, State agencies were paying the premiums of 21,000 persons, and 8,000 people were paying premiums to the RRB, either directly or through an intermediary. The RRB periodically transfers premiums to the SMI trust funds.
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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 1990, excluding the Ioans and interest due the RR Account, was $273.8 million, a decrease of $42.8 million over the previous year. This decrease was primarily the result of a $163 million direct cash repayment against the loans and interest balance. When the loans and interest balances due the RR Account at September 30, 1990, totaling $357.4 million are considered, the RUI Account had a deficit equity balance of $83.6 million at the end of the fiscal year.
Revenue during the fiscal year totaled $206.8 million, some $3.7 million less than in fiscal year 1989. Revenue in fiscal year 1990 included contributions of $188.2 million and interest and miscellaneous income from the Federal Unemployment Insurance Trust Fund of $18.6 million.
Expenditures from the RUI Account during fiscal year 1990 totaled $128.3 million, some $15 million less than in fiscal year 1989. Unemployment and sickness benefit payments of $87.2 million comprised 68 percent of the total expenditures. Interest expense on the RR Account loans amounted to $40.3 million. Expenditures also included $0.8 million to partially fund the RRB’s Office of Inspector General.
In fiscal year 1990, the loans and interest payables were reduced by actual tax receipts of $112.5 million.
Railroad Unemployment Insurance Administration Fund
The equity balance in the RUI Administration Fund was $9.7 million at the end of fiscal year 1990, some $2.4 million more than at the start of the year. Revenue to the RUI Administration Fund totaled $17.5 million during fiscal year 1990, an increase of $0.2 million from the previous fiscal year. By law, 0.65 percent of RUI taxes, or $16.9 million, was allocated to the fund, a decrease of $0.1 million from the previous fiscal year. These contributions accounted for 96.6 percent of total revenue during the year. Interest income from the Federal Unemployment Insurance Trust Fund amounted to $0.6 million.
Expenditures from the RUI Administration Fund during fiscal year 1990 totaled $13.7 million, a decrease of $0.3 million from fiscal year 1989.
Loans Due the Railroad Retirement Account
The loans and interest due the RR Account decreased in fiscal year 1990 from $592.6 million to $357.4 million. This net decrease of $235.2 million was the result of a voluntary direct cash repayment of $163 million and the application of $112.5 million in repayment taxes against the loans and interest balance offset by an increase in interest due on the loans of $40.3 million. The cash repayment, along with the unemployment repayment tax that will remain in force at 4 percent until the loans and interest are fully repaid, should allow the debt to be repaid and the repayment tax to expire some time in 1994, barring a major decrease in railroad employment.
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Railroad Unemployment Insurance Account Statement of Operations and Changes in Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1990 1989
Financing Sources Revenue -Contributions Interest on investments and other income • $ 188.2 18.6 $ 191.9 18 6
Total financing sources . $ 206.8 $ 210.5
Expenditures Benefit payments - unemployment • $ 59.5 $ 57.6
Benefit payments - sickness 27.7 29.3
Interest expense - RR Account loan Cash transferred for salaries 40.3 55.7
and expenses .8 .7
Total expenditures • $ 128.3 $ 143.3
Net Results . $ 78.5 $ 67.2
Equity balance at beginning of year Funds transferred from RUI Administration . (276.0) 1.4 (406.0)
Reduction of loan and interest payable -
RR Account 112.5 62.8
Equity Balance (Deficit)
at End of Year . $ (83.6) $ (276.0)
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Railroad Unemployment Insurance Account Loans and Interest Due Railroad Retirement Account (In millions)
For the Fiscal Year Ended September 30, 1990 1989
Balance, Beginning of Fiscal Year .... $ 592.6 $ 599.7
Repayments:
Repayment tax - principal $ 66.8 $ 40.2
Repayment tax - interest 45.7 22.6
RUI Account cash - principal 98.7
RUI Account cash - interest 64.3
Total repayments $ 275.5 $ 62.8
Interest Accrued, Total $ 40.3 $ 55.7
Balance, End of Fiscal Year $ 357.4 $ 592.6
Railroad Unemployment Insurance Administration Fund Statement of Operations and Changes in Equity Balance (In millions)
For the Fiscal Year Ended September 30, 1990 1989
Financing Sources Revenue -Contributions Interest on investments and others $ 16.9 .6 $ 17.0 .3
Total financing sources $ 17.5 $ 17.3
Expenditures
Salaries and expenses $ 13.7 $ 14.0
Total expenditures $ 13.7 $ 14.0
Net Results $ 3 8 $ 3 3
Equity balance at beginning of year 7 3 4 0
Transferred to RUI Account (1.4)
Equity Balance at End of Year $ 9.7 $ 7.3
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Benefit Operations
Unemployment and sickness benefits totaling $89.8 million were paid in the 1989-90 benefit year, $3.2 million less than in the prior year. Beneficiaries numbered 55,000 in comparison to the previous year’s total of 65,000. Approximately 2,700 employees received both unemployment and sickness benefits during the 1989-90 benefit year. The number of unemployment and sickness beneficiaries decreased by 15 percent and 16 percent, respectively, compared to the 1988-89 benefit year. Total unemployment benefits decreased by 6 percent, while total sickness benefits increased 1 percent. The number of employees qualified for benefits under the Railroad Unemployment Insurance Act fell 5 percent to a total of 348,600. Virtually all unemployment and sickness benefit claimants were paid at the $31 maximum daily benefit rate in the 1989-90 benefit year.
A waiting period for both unemployment and sickness benefits in each benefit year has been required since benefit year 1988-89. Actual unemployment and sickness waiting period claims totaled 28,300 and 28,700, respectively, during benefit year 1989-90. The average days per actual waiting period for unemployment and sickness benefits were 7.8 and 9.5, respectively.
Unemployment
Some 29,900 railroad workers were paid $57.2 million in unemployment benefits during the 1989-90 benefit year. The number of beneficiaries dropped by more than 5,200 from the prior year total of 35,200 while the benefit amount fell $3.6 million from the year-earlier total of $60.8 million. The average number of compensable days per unemployment benefit claimant was 64 in benefit year 1989-90, compared to 59 in the previous year. Average railroad employment in benefit year 1989-90 was about 3 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 1989-90 benefit year began with a benefit year low mid J uly count of 7,400 claimants. The count peaked at 17,300 in mid-January, and dropped to 7,800 in mid-June 1990. For the 1989-90 benefit year as a whole, the weekly number of claimants averaged 10,600 in comparison to an average of 10,700 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 9 per 100 qualified from the 10 per 100 level of the previous year. The decrease was caused in part by the claimants who had only a waiting
Note.-Railroad unemployment and sickness benefits are paid on the basis ol benefit years 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.
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Beneficiaries under the Railroad Unemployment Insurance Act, benefit years 1985-86 through 1989-90
.. lyyviW
100,000
Unemployment and sickness benefit claimants by age, 1989-90
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Major unemployment and sickness benefit operations, benefit years 1989-90 and 1988-89
Benefit year 1989-90
Benefit year 1988-89
Item
Total Unemployment Sickness Total Unemployment Sickness
Applications 81,600 39,600 42,000 96,900 49,200 47,700
Claims 569,300 298,900 270,400 582,400 298,000 286,300
Beneficiaries* 55,400 29,900 28,200 65,000 35,200 33,700
Net amount of
benefits2 $ 89,781,400 $ 57,215,000 $ 32,566,400 $ 92,934,100 $ 60,797,700 $ 32,136,400
Number of
payments:
Normal 374,000 203,100 170,900 420,800 220,100 200,700
Extended 53,600 21,000 32,600 63,900 26,400 37,500
Total 427,600 224,100 203,500 484,700 246,500 238,200
Average amount
per 2-week
registration
period:
Normal $ 269.37 $ 254.81 $ 286.67 $ 258.90 $ 247.14 $ 271.81
Extended 282.30 274.21 287.52 261 10 249.97 268.92
Total 270.99 256.63 286.81 259.19 247.44 271.35
'Benefits for both unemployment and sickness were paid to approximately 3,800 employees in benefit year 1988-89 and 2,700 employees in benefit year 1989-90. Those claimants who had only a waiting period are not included in the benefit year 1989-90 beneficiary counts since no benefits were paid. 2The daily benefit rate increased from $30 to $31 effective July 1,1989.
Note.--Detail does not add to total due to rounding.
period during the year and thus were not included in the beneficiary count. The last time the rate was this low was in benefit year 1973-74. The median age of all unemployment benefit claimants was 39 years, the same as the previous benefit year.
Placement of Unemployed Railroaders
New jobs were found for 450 unemployed railroad workers during the 1989-90 benefit year as a result of cooperative placement activities by railroad management, railroad labor organizations, State employment service offices and the Railroad Retirement Board. The placement service is operated under the auspices of the RRB and is provided to railroad employees free of charge. More than one-half of the jobs found were outside the railroad industry. There were 300 placements by RRB offices, 50 placements by State employment service offices and 100 by local railroad unemployment claims agents, who were primarily employed by the carriers. On September 1,1989, the RRB began registration for unemployment benefits by mail. As a result, railroad unemployment claims agents stopped registering claimants for benefits by the end of September 1989, and their positions were abolished effective January 1, 1990. Due to the abolishment of unemployment claims agent positions, placements were about 300 less than the previous benefit year’s total.
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Sickness
Sickness benefits totaling $32.6 million were paid to 28,200 railroad workers in the 1989-90 benefit year. The number of beneficiaries dropped by 5,500 from the previous year’s total of 33,700, while the benefit amount rose more than $0.4 million from the year-earlier total of $32.1 million.
The utilization rate for employees receiving sickness benefits was
8 per 100 qualified employees. During the previous year the rate was 9 per 100 qualified employees. As with unemployment, some of this decrease was due to the claimants whose only sickness during the year satisfied the waiting period requirement. The 1989-90 benefit year was the 13th consecutive year in which the number of sickness 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 68 compensable days in benefit year 1989 90, compared to 67 in the previous year. Among the most common causes of sickness were injuries other than fractures (affecting 27 percent of beneficiaries), mental disorders, including drug and alcohol addictions (10 percent), and fractures (8 percent). The median age of all sickness benefit claimants was 42 years, 1 year lower than the previous benefit year.
Railroad Employment
Average monthly employment in fiscal year 1990 dropped 3.5 percent to 299,000 from the 310,000 average of the previous year. The previous year’s decline was 2 percent. Employment declined from month to month until February, then showed a slight upturn from March until May 1990. That level declined slightly from June through July. Employment rose again in August and fell in September. October 1989 had the highest level of employment with 305,000, and February 1990 had the low of 293,000.
Average Railroad Employment fiscal years 1989 and 1990 Employment (Thousands)
FY89 —
FY 90 «■
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Recent Developments
Commission Report
The Commission on Railroad Retirement Reform, created by 1987 budget legislation to conduct a comprehensive study of long-term railroad retirement financing issues, released its report to Congress in September 1990.
Assuming that the system continues without significant structural changes, the Commission unanimously concluded that the railroad retirement system is financially sound in the intermediate term and will not experience cash flow difficulties during the next 20 to 25 years. While the long-term financial viability of the system was less certain, the Commission concluded that it is quite probable it is financially sound over the next 75 years. It should be noted, however, that the Commission found the employment level to be the most significant yet historically least reliable assumption.
The Commission proposed a permanent extension of the transfers of Federal income tax revenues from tier II benefits back to the railroad retirement trust funds, just as the income tax revenues generated by taxing social security beneficiaries flow into the social security trust funds. This recommendation was made in conjunction with other recommendations for structural changes to the Railroad Retirement Board’s programs.
Legislation
The Federal budget legislation enacted on November 5, 1990, (P.L. 101-508) extended through fiscal years 1991 and 1992 the time during which revenues from Federal income taxes on railroad retirement benefits exceeding social security levels may be transferred to the Railroad Retirement Account for use in paying benefits. The budget legislation also affected certain benefits paid by the RRB as well as Medicare costs and coverage in fiscal year 1991 and subsequent years.
Benefit Payments. --While railroad retirement tier I and tier II benefits are exempt from Gramm/Rudman budget balancing reductions, supplemental railroad retirement annuities and unemployment and sickness benefits paid by the RRB have been subject to reductions under the Gramm/Rudman Act. Enactment of the 1991 Federal budget reconciliation legislation precluded fiscal year 1991 Gramm/Rudman budget balancing reductions of over 30 percent that would otherwise have been required in these benefits. The budget law also permanently exempted supplemental annuities from reductions under the Gramm/Rudman Act, but railroad unemployment and sickness benefits remain subject to Gramm/Rudman budget balancing reductions in future years.
During the 1990 fiscal year, maximum biweekly unemployment and sickness benefits of $310 had been reduced to $304.73 and supplemental annuity payment reductions averaged 32^ per month. The RRB resumed paying unemployment and sickness benefits at full rates in October 1990, and full supplemental annuity rates for October were reflected in the monthly payments made to retired employees on November 1, 1990.
Vested dual benefits also paid by the RRB to about one-fourth of all railroad retirement annuitants have been exempt from budget balancing reductions under the Gramm/Rudman Act. But, these benefits are funded by appropriations from general revenues of the U.S. Treasury, rather than by
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payroll taxes on railroad employers and employees, and are subject to reduction if a fiscal year appropriation is less than the amount of benefit payments due for the year. While funding limitations required a 2.41 percent reduction in fiscal year 1991 health and human services appropriations, including amounts available for vested dual benefit payments, the RRB estimated at the beginning of the year that the remaining funds may be sufficient to fund all payments due during the fiscal year, or most of the year.
Payroll Taxes.--Wh\\e the total railroad retirement tier I tax rate remains, in effect, unchanged from 1990, beginning in 1991 the rate is divided into two separate parts for withholding and reporting purposes because of a split in the annual tier I taxable maximum. The tier I railroad retirement part of the tax is 6.20 percent, while the tier I Medicare hospital insurance part of the tax is 1.45 percent. The maximum amount of an employee’s earnings subject to the 6.20 percent rate increased under indexing provisions to $53,400 in 1991; however, earnings subject to the 1.45 percent Medicare hospital insurance part of the tax were increased by legislation beyond $53,400 to $ 125,000. Consequently, employee and employer contributions continue to be made at the 1.45 percent rate, even after the employee has earned $53,400.
In 1991, the tier II retirement tax rate for employers remains 16.10 percent, and the tier II tax rate for employees remains 4.90 percent,while the maximum compensation subject to the tier II tax increased to $39,600.
In addition, the tax legislation requires an expedited payroll tax deposit schedule for large employers covered by social security or railroad retirement.
Medicare Premiums and Changes. --The budget legislation set increases in the monthly premium that retirees pay for Medicare medical insurance during a 5-year period to reflect current estimates of the level necessary for premiums to cover 25 percent of program costs through 1995. That premium increased from $28.60 a month in 1990 to $29.90 in 1991, and will increase to $31.80 in 1992, $36.60 in 1993, $41.10 in 1994 and $46.10 in 1995. The budget law also increased the annual $75 medical insurance deductible to $100 in 1991 and thereafter, and made a number of changes in certain payments made to hospitals, doctors, and other suppliers of medical care. In addition, it provided coverage for mammography screening, extended coverage for hospice care under certain conditions, and mandated certain standards for insurers providing Medigap policies.
Experience Rating
During 1990, the RRB implemented the first phase of a completely new experience rating system for determining employers’ individual contribution rates to the unemployment and sickness insurance program on the basis of benefits paid to each railroad’s employees. Provision for an experience rating system was included in the Railroad Unemployment Insurance and Retirement Improvement Act of 1988.
In January 1990, a new database system began allocating unemployment and sickness insurance benefit charges and credits to base year employers as required by the experience rating provisions. In June 1990, the RRB notified each employer of its cumulative contributions and benefit charges for the quarter ending March 31,1990. Such notice is required quarterly under the Act. Early in October 1990, the RRB calculated for each
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employer an experience-based contribution rate applicable to compensation payable for 1991, and provided notice to each employer of its 1991 contribution rate and the components used in its computation.
Experience rating under the Act is being phased in over a 3-year transition period. The law provides that an employer’s tax rate for 1991 be partially determined by the employer’s experience in 1990; and for 1992, partially by the employer’s experience in 1990 and 1991. Full experience rating will be implemented with the calculation of the employer’s tax rate for 1993, based on experience in the years 1990, 1991 and 1992.
The experience-based contribution rates for 1991 range from 5.55 percent to the maximum rate of 12 percent. The average rate for 1991 is 6.24 percent. In 1990, the last year for which contribution rates were not determined by experience, rail employers, except public commuter railroads, paid a flat rate of 8 percent.
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Administrative Highlights
Management Review
During 1990 the RRB and the Office of Management and Budget (OMB) developed an agreement on a funding proposal of $14 million to supplement existing RRB resources devoted to claims processing, debt collection, fraud control, information systems, tax accounting and trust fund integrity. The agreement is the result of a lengthy series of reviews, discussions and proposals for the commitment of RRB management to necessary improvements in efficiency, service and overall management and of OMB for the needed resources to elevate confidence in the operations and integrity of the railroad retirement system. The agreement calls for creation of a special management improvement fund to be used over a 5-year period ending September 30, 1996. Cost-effectiveness will be the primary criterion for the expenditure of these funds, so that the investment will yield significant results in reducing the material weaknesses in the RRB’s internal controls and effect savings in future administrative costs. The funds would allow the RRB to reduce claims processing backlogs from 80,000 to zero without compromising accuracy, to enhance debt collection activities with new initiatives, to ensure the accuracy of statements issued to beneficiaries for income tax purposes, and to expand electronic fraud control activities to all areas of the country as well as deterring fraud in the future. Funds requested for fiscal year 1992, if approved by the Congress, would be used to accomplish the following purposes:
Claims Processing --Although progress has been made in reducing benefit case backlogs, a backlog of adjustments to retirement and survivor cases still exists. A concerted effort by a sizable number of skilled and experienced claims examiners is needed to eliminate the backlog in the next few years.
Debt Collection.-The RRB would use the requested resources to (1) establish a strong executive position to manage the RRB’s debt collection program, (2) expand the use of debt collection agencies and the income tax offset program, (3) eliminate a backlog of unemployment insurance cases requiring that accounts receivable be established, and (4) work towards other debt offset programs where possible. The costs of these debt collection enhancements will be more than offset by increased collections.
Fraud Control.--The resources requested for this area would be used to extend the RRB’s automated wage matching program to additional States in order to check on earnings by unemployment, sickness insurance and disability beneficiaries. The RRB has made significant progress in contracting with States to perform such automated wage matches. As of May 1, 1991, it had contracts with 27 States that provided automated wage matches covering about 76 percent of all railroad employers. The RRB’s goal is to enter into agreements with each of the 50 States and the District of Columbia, if cost effective, as soon as practicable.
Tax Accounting.--Under the Railroad Retirement Solvency Act of 1983, all railroad retirement annuities became taxable beginning with tax year 1984. Within a short time, the RRB developed an entirely new system to account for benefit payments by railroad retirement tier component and transaction date. Although the system was in place in time to release tax statements in January 1985, as required by law, it had not been completed.
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Legislative changes in 1986 and 1988 necessitated extensive revisions to this partially developed tax accounting system. Internal quality assurance reports documented significant problems with the accuracy, quality, and timeliness of tax statements.
Additional resources would be used to reduce the backlog of individual record and tax statement corrections (and maintain balances in other workload categories at normal levels) and to implement improved system controls. In September 1991, the RRB also expects to complete an in-depth analysis of the current tax system to determine the extent to which this system and other systems from which it draws data need to be modified or replaced.
Trust Fund Integrity.--The Internal Revenue Service is responsible for the collection of railroad retirement taxes. To help ensure that the correct amounts of taxes are credited to the RRB’s accounts, the RRB performs a number of verification checks. Railroad employee compensation reported to the IRS for tax purposes and to the RRB for benefit purposes is reconciled. The requested resources would be used to complete the compensation reconciliations sooner and to perform further reconciliation activities with additional information to be obtained from the IRS.
Information Systems.--The RRB will continue to implement long-range automation plans for its retirement, unemployment and sickness insurance, and taxation programs and to continue to develop and expand the use of microcomputer technology. Additional resources would be used to develop a workload measurement system for tracking the time it takes RRB field offices to complete major workloads. The RRB is committed to concentrate on creative ways to automate and streamline its systems and significantly increase accuracy and timeliness in the processing of its claims.
The RRB is committed to working with OMB toward mutual goals of improved operational efficiency, program integrity and improved service.
Board Members
President Bush appointed Andrew F. Reardon as the Management Member of the RRB. His nomination was confirmed by the Senate on October 15, 1990, and he was sworn into office on October 24. Mr. Reardon succeeded John D. Crawford, who served as Management Member since 1985.
A lawyer, Mr. Reardon had been Senior Vice President of Law and Real Estate for the Illinois Central Railroad Company since 1985. Prior to that, he was General Counsel for Farm Credit Services, 1984-85; Assistant Vice President for Law for the Burlington Northern Railroad Company, 1982-84; and Assistant General Counsel for the Burlington Northern, 1981.
Mr. Reardon was Senior Tax Counsel for the Union Pacific Railroad, 1979-81; and a General Tax Attorney for the St. Louis-San Francisco Railway Company (which later merged into Burlington Northern), 1977-79. He began his career as an Associate with the firm of Thompson and Mitchell in St. Louis, 1975-77.
Admitted to the Bar in Ohio in 1974; Missouri in 1975; Nebraska and Minnesota in 1981; and Illinois in 1985, Mr. Reardon was also admitted to the U.S. Tax Court and the U.S. Claims Court in 1981. And, in 1981 he authored Leasing Under the Economic Recovery Tax Act of 1981, which was published by the Practicing Law Institute. He is a member of the American Bar Association and was Chairman of its Depreciation and Credits Tax Section, 1982-84.
Chairman.--Glen L. Bower was appointed Chairman of the Railroad Retirement Board in April 1990. An attorney, Mr. Bower had been Assistant
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Director of the Department of Revenue for the State of Illinois since 1983 and during part of his tenure he also served as General Counsel, and as Chairman for the Revenue Board of Appeals. Mr. Bower has served on the U.S. Economic Advisory Board, 1982 85, and as Chairman of the Attorneys and Tax Appeals Section of the National Association of Tax Administrators, 1986-88. He was a Member of the Illinois House of Representatives, 1979-83, and was the State’s Attorney of Effingham County, Illinois, 1976-79. Mr. Bower is a U.S. Air Force Reserve major in the Judge Advocate General’s Department.
Labor Member.--Charles J. Chamberlain was first appointed Labor Member of the Board in October 1977. Prior to his appointment, he was President of the Brotherhood of Railroad Signalmen, and had also served as Chairman of the Railway Labor Executives’ Association, a coordinating and policy-making body on legislative and other matters affecting railroad workers. In addition, he served on the High Speed Ground Transportation Advisory Committee, the Railroad Safety Research Board, and the Railroad Industry Labor-Management Committee. Mr. Chamberlain began his railroad career as a signalman for the Chicago and North Western Railroad in 1938.
Administrative Management Activities
Program Integrity
Program integrity activities in 1990 included investigating uncashed checks, monitoring earnings, matching payroll records with railroads and States, and performing other types of monitoring and matching checks related to disability, age and death.
• Field staff investigated 150 cases of returned or uncashed benefit checks and determined that in some cases the beneficiary was deceased. As a result, erroneous benefit payments of $216,357 were returned to the RRB.
• Matches with Social Security Administration and Health Care Financing Administration death records identified 457 overpayments due to unreported deaths. Approximately $526,376 has been recovered, and recovery of an additional $426,500 is in progress.
• An on-line system was developed to monitor railroad retirement/social security trust fund transfers and to maintain updated social security benefit payment information.
• Questionnaires sent to 4,044 annuitants over 89 years of age revealed 43 unreported deaths which resulted in identification of $600,383 in overpayments.
• Payroll matches with several major railroads identified $247,707 in railroad unemployment and sickness insurance benefits to be recovered. Matches of benefit files with annual employee compensation reports helped identify another $55,012 in recoverable benefits.
• Automated wage matches with several States identified 998 unemployment and sickness insurance beneficiaries who were improperly paid $929,230; manual wage checks also produced 636 cases involving $656,110 in recoverables. Starting in September 1990 with the State of New York, disability annuitants are now being included in the wage match program.
• A match with Social Security Administration earnings records in March 1990 identified 1,704 individuals with wage records showing earnings in excess of exempt amounts, and determinations of erroneous payments are in progress.
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• Benefit savings of approximately $535,000 were realized in the RRB’s unemployment and sickness insurance program through the new prepayment claims verification process.
Tax Accounting
The RRB placed high priority on improving tax accounting in 1990. The legibility and quality of the 1989 annual tax statements were improved by using a contractor to print and mail 962,789 tax statements to U.S. citizens. In addition, approximately 9,200 cases requiring manual review were identified and bypassed in the automated statement process, preventing inaccurate statements from being released. Those beneficiaries received notices advising them that the release of their tax statements would be delayed pending a manual review.
New programs were put into operation to automatically correct certain identified errors and provide for continuous data accuracy in the RRB’s tax system as well; another new system significantly reduced the amount of time necessary to process tax withholding election data.
Increased public satisfaction with tax accounting resulted in 25,000 fewer telephone inquiries to field offices (a 35 percent reduction) and 4,000 fewer pieces of correspondence (a 28 percent reduction) in 1990 than in 1989.
Automation
Funds have been provided for the first year of a 3-year lease-to-purchase procurement for a new mainframe computer. Design of an integrated database to consolidate claims-related data and the development of two on-line correction facilities were systems initiatives projects which began in 1990. The integrated database will contain benefit information from current systems
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necessary for the development of new, more advanced systems. The first correction system will facilitate changes in various taxation records, thus providing more accurate statements. The second correction facility will allow agency staff to correct errors or omissions in benefit data before processing for payment, eliminating future manual case handlings and improving the accuracy of payments.
The RRB’s ADP Steering Committee plays a much more active role in controlling systems development projects than previously. Also, a computer security plan has been prepared for each of the RRB’s sensitive computer systems and an agency wide contingency/disaster recovery plan is being developed for critical mainframe, personal computer, and manual applications. Other recent information resources management improvements include maintenance of a database of all forms on a PC, publication of an inventory of all external and internal reports, and issuance of a revised comprehensive records disposition schedule.
Financial Management
Of the Federal agencies participating in the Federal income tax refund offset program, recoveries in RRB cases were among the most successful The IRS collected $353,410 from income tax refunds for 1,727 cases referred by the RRB. An additional $52,276 was collected directly from 215 debtors after the RRB notified them of its intent to refer their debts for offset by the IRS. Also, the RRB’s debt collection program produced collections of $28,806 through referrals to the Department of Justice, and $25,524 through referrals to private collection agencies. The RRB has also been working actively with the IRS to establish procedures to improve the flow of tax deposit information to the RRB.
Equal Employment Opportunity
The RRB experienced net gains in employment of all Equal Employment Opportunity groups for whom specific goals were set: Hispanics, disabled veterans and individuals with targeted disabilities agencywide; and non-minority females in computer specialist positions. All active discrimination complaints were closed during the fiscal year, and the RRB ended the year with no pending complaints. The self-evaluation of compliance with respect to accessibility of RRB programs to handicapped individuals was completed and circulated for comment.
Strategic Plan
In January 1990, the RRB issued the Strategic Plan for Fiscal Years 1990 1994. The plan defined the agency’s mission and established strategic objectives to work toward over the 5-year period. The RRB’s mission and long term strategic objectives are reflected in operations plans prepared annually by the RRB’s operating components and provide a framework for other, more detailed plans. These include the RRB’s automation plan, the financial management improvement plan, and management control plans. The planning process is guided by six strategic concerns.
• Manage clai ms operations effectively and efficiently.
• Provide a high level of service to the railroad community.
• Protect the integrity of the trust funds through sound financial and administrative practices.
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• Utilize appropriate technology in the continuing development of high quality service delivery systems.
• Foster an organizational culture which reflects the guiding principles of commitment to excellence with the RRB’s constituency and employees.
• Comply with congressional, regulatory and executive branch mandates, and fulfill other responsibilities as a Federal agency.
Office of Inspector General
The Office of Inspector General (OIG) continued to provide comprehensive audit and investigative coverage of RRB programs. OIG efforts have resulted in major contributions towards the improvement of the economy and effectiveness of RRB operations, and the creation of a deterrent against fraud, waste, and abuse.
The Office of Audit issued 40 reports with actual and potential monetary benefits exceeding $26.5 million in fiscal year 1990. In addition, an agreement between the Social Security Administration and the RRB will result in a one-time credit of about $165 million as a result of a 1987 OIG audit recommendation regarding a new formula for calculating interest rates. The agency will also receive substantial annual interest as a result of this recommendation.
During fiscal year 1990, audit activities included the following:
• Enactment of legislation by the U.S. Congress addressing two areas cited in previous OIG reports: inclusion of deferred compensation and group life insurance plans as taxable compensation, and the acceleration of payroll tax deposits. These legislative changes will result in over $5.4 million annually in additional tax receipts for the RRB trust funds.
• Issuance of 19 audit reports of railroad employers identifying instances of noncompliance in the payment of taxes and/or reporting of compensation and approval of a memorandum of understanding between the OIG and the IRS to jointly coordinate audits of the nation’s railroads.
• Establishment of a Medicare program integrity function and completion of four specialized audits of the RRB’s Medicare Part B carrier’s payment system.
The Office of Investigations (01) obtained 101 convictions, the highest annual level in its history. OI also achieved 78 indictments/informations, an increase of 73 percent over fiscal year 1989. In addition, the investigative arm of the OIG accounted for over $1.4 million in recoveries and restitutions, collected $94,000 in fines, and referred 350 investigations to U.S. Attorneys across the nation. At the close of fiscal year 1990, the Ol’s caseload had expanded to 2,436 criminal matters with estimated losses of over $17.5 million.
Service to the Rail Public
Application Procedures
The RRB instituted procedures to accept annuity applications from employees and spouses up to 3 months in advance of their planned retirement dates, and to file their applications by telephone. Under previous rules, applications could not be filed prior to an individual’s retirement date, unless the application was for survivor benefits; and most applications were filed in
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person. This new policy is another in a series of changes the RRB has made to reduce the time it takes to initiate railroad retirement benefit payments to new retirees. Advance filing enables the RRB to complete the processing of most claims prior to a person’s retirement date, and initiate payments about 30 days later. It is no longer necessary to file a survivor application in spouse-to-widow(er) conversion cases.
Information Activities
The RRB maintains direct contact with railroad retirement beneficiaries through its 90 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 RRB also relies on railroad labor groups and employers for assistance in keeping railroad personnel informed about its benefit programs.
Informational Conferences
During the 1990 fiscal year, 2,359 railroad labor union officials attended 60 railroad retirement system informational conferences held in 60 cities throughout the United States.
At these conferences, RRB representatives describe and discuss the benefits available under the railroad retirement-survivor, unemploymentsickness 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 RRB in 1957, have since become an integral part of the RRB’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 an RRB 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 1990, the Labor Member’s Office was represented at 21 union gatherings attended by 3,096 railroad labor officials. Field personnel addressed 95 local union meetings with 5,104 members in attendance. There was a total of 116 meetings, with a total attendance of 8,200.
Seminars for Railroad, Officials
During the 1990 fiscal year, the Management Member’s Office conducted two seminars, attended by 82 railroad officials. Seminars for railroad executives and managers were initiated by the Management Member of the RRB in 1977. At these meetings, RRB representatives review the benefit programs, financing, and administration, with special emphasis on
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those areas which require cooperation between railroads and RRB offices. I hese meetings have facilitated cooperation and coordination, and they have helped keep railroad officials up-to-date on the RRB’s benefit programs. In addition, the Management Member’s Office conducted three pre-retirement counseling seminars attended by 147 railroad employees and their spouses.
The RRB’s Bureau of Research and Employment Accounts conducted six employer seminars, attended by 65 railroad officials representing nine employers. The seminars provided information regarding annual and quarterly reporting requirements, legislation, employer tax information and other service and compensation matters.
Client Satisfaction Survey
In order to determine how well the needs of its beneficiaries are being served, the RRB conducted its first Client Satisfaction Survey. The survey results finalized in April 1990 showed that 88 percent of the respondents rated RRB service as good to very good and 90 percent were satisfied with the manner in which their most recent railroad retirement matter was handled. Also, 96 percent rated RRB employees as courteous in person, 93 percent over the phone, and 93 percent found RRB mail understandable.
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Legal Rulings
Administrative Rulings
The following administrative rulings which were rendered during the 1990 fiscal year have been selected for inclusion in this report because of their special significance or interest.
Compensation
Legal Opinion L-90-45 concerned whether payments made by a railroad employer under the Longshoremen’s and Harbor Workers’ Compensation Act (LHWCA) constitute pay for time lost and therefore creditable compensation under the Railroad Retirement Act.
The Railroad Retirement Act provides that creditable compensation includes pay for time lost, which is defined as an amount paid by an employer to an employee with respect to an identifiable period of absence from employment; payments made by an employer to an employee with respect to a personal injury are presumed to be pay for time lost. The LHWCA provides for a no-fault system of compensation for injuries sustained by an employee while rendering service on navigable waters, including work on an adjoining pier, wharf, warehouse, or marine railway.
The Deputy General Counsel held that payments under the LHWCA, like payments under State workers’ compensation laws, are in the nature of social insurance payments and not compensation. Accordingly, payments under the LHWCA are not creditable compensation under the Railroad Retirement Act.
Coverage
1. Legal Opinion L-90-73 concerned a railroad established under the Feeder Line Development Program. In 1980, Congress, as part of the Staggers Rail Act, enacted the Feeder Line Development Program. This program was designed "to provide shipper groups and government agencies an alternative to inadequate rail service and preserve feeder lines prior to the total downgrading of such lines.” The Interstate Commerce Commission (ICC) held that a company which exercises its right of exemption under the Feeder Line Development Program is not a carrier under the Interstate Commerce Act.
The Deputy General Counsel held that in enacting the Feeder Line Development Program and providing an exemption from ICC regulation, Congress did not intend to exempt railroads from coverage under the Railroad Retirement, Railroad Retirement Tax, and Railroad Unemployment Insurance Acts. Accordingly, the Deputy General Counsel determined that the railroad in question was covered under those Acts.
2. Both the Railroad Retirement and Railroad Unemployment Insurance Acts include among covered employers any association or organization which is controlled and maintained principally by two or more rail carrier employers or rail carrier affiliate employers and which performs service in connection with or incidental to railroad transportation In Legal
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Opinion L-90-62 the Deputy General Counsel considered whether an association formed to provide medical care for its members constituted an employer under the foregoing provision.
The association in question was organized as a non-profit health plan under State law to provide prepaid medical services to some 17,000 members. Association members are all employees of rail carriers covered as employers under the Acts. The association is governed by a 14 member board, including two board members who are also officials of one of the rail carriers. The association is supported primarily by deductions from the wages of employee members.
The board of the association in question had only two members representing railroad management, and was supported by employee contributions rather than employer funding. In the opinion of the Deputy General Counsel, these circumstances showed the association was not controlled or maintained by rail carrier employers. Consequently, the association was found not to be a covered employer under the Acts.
3. Both the Railroad Retirement and the Railroad Unemployment Insurance Acts define individuals in the service of a covered employer for compensation to be employees for purposes of benefit entitlement. In Legal Opinion L-90-50, the Deputy General Counsel considered whether individuals loaned from a shipper in order to form train operating crews were employees of the rail carrier.
In 1984, the individual owning S corporation, a major shipper on a line of track operated by a class I rail carrier, formed a railroad company to purchase the line when the class I carrier announced its intention to abandon service. S corporation furnished employees to R to run trains once or twice weekly. The rail company paid S for the services of these individuals, who were solely compensated by S. When the Deputy General Counsel found the railroad to be an employer as a rail carrier subject to the Interstate Commerce Act, and further found the individuals conducting rail operations to be employees subject to the Acts, the railroad requested reconsideration of that determination pursuant to regulations of the Board.
On reconsideration, the railroad contended that it was not a covered employer because it had no employees. The Deputy General Counsel reviewed the history of the definition of "employee” under the Acts, and concluded that individuals performing train operations were subject to the direction and control of the railroad. Further, where they were compensated for this service through a contract with a third party, they were in fact compensated by the railroad indirectly for the service they performed. Accordingly, the Deputy General Counsel held on reconsideration that the individuals furnished to the railroad by S corporation were employees of the railroad for purposes of the Acts.
Court Review
Twenty-three cases involving the Railroad Retirement Board were pending in the courts at the beginning of fiscal year 1990, and twenty cases were opened during the fiscal year. Twenty-two cases were pending at the end of the fiscal year.
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Nancy Johnson,, etal. v. United States Railroad Retirement Board, filed in the District Court for the District of Columbia on September 21,1989, is a proposed class action on behalf of certain widow and spouse annuitants receiving reduced annuities because the children in their care are between the ages of 16 and 18.
The Railroad Retirement Act provides for annuities to widows, widowers, and spouses of railroad employees with a child under age 18 in their care. However, the 1981 amendments to the Social Security Act (P.L. 97-35) provide that entitlement to fathers’, mothers’ and surviving spouse benefits under that Act based upon the beneficiary having a child in his or her care terminates when the child attains age 16. Because the tier I annuity amount under the Railroad Retirement Act is to be calculated as the amount which would have been paid had the employee’s railroad earnings and service been credited under the Social Security Act, the RRB has interpreted this amendment as prohibiting the payment of a tier I amount to the spouse or surviving spouse of an employee with a child in care after the child has attained age 16. The RRB continues to pay the tier II annuity amount until the child attains age 18.
The complaint alleges that in pursuing this interpretation, the RRB has failed to apply the decision of the Eighth Circuit Court of Appeals in Costello v. U.S. Railroad Retirement Board, 780 F. 2d 1352(1985). That case involved a widow whose benefits had been affected by the RRB’s interpretation of the 1981 social security amendments. The Court of Appeals ordered the RRB to pay the widow full tier I and tier II amounts until her child attained age 18. The plaintiff in Nancy Johnson essentially asks the Court to order the RRB to identify all spouse and widow annuitants whose tier I amount has not been paid due to a child attaining age 16; to pay retroactive benefits to these individuals; and to pay tier I amounts to these categories of beneficiaries in the future. Plaintiff’s attorneys also ask the Court to award attorneys’ fees and costs.
The Board opposed the action on the grounds that review of a decision of the Board may be made only by a Court of Appeals. In May 1990 the plaintiff filed a second, independent action in the United States Court of Appeals for the District of Columbia Circuit to preserve her right to review. In July 1990 the District Court found it had no jurisdiction to review the plaintiff’s case, and entered an order transferring her case to the Court of Appeals. At the plaintiff’s request, the District Court vacated its earlier transferral order and dismissed the action from its docket instead. The plaintiff subsequently appealed to the Court of Appeals on November 23,1990.
Claudette P. Johnson v. United States Railroad Retirement Board, filed May 17,1990, in the United States Court of Appeals for the Eleventh Circuit, concerned essentially the same issue as Nancy Johnson.
The RRB terminated the tier I annuity component of the plaintiff’s widow’s annuity when the child in her care attained age 16. The plaintiff sought review of the Board decision on the grounds that termination of her tier I amount based on the 1981 amendments to the Social Security Act contravened the decision of the Eighth Circuit Court of Appeals in Costello.
On March 11,1991, the Eleventh Circuit Court of Appeals, relying on the Costello decision, held that the RRB should have continued payment of the
49
tier I component until the child in care attained age 18. The RRB, assisted by the United States Department of Justice, requested that the panel of judges which decided the case rehear the issue. On May 20,1991, the Court denied the RRB’s request for rehearing.
A petition for review was filed in the United States Court of Appeals for the Seventh Circuit on January 5,1989, in the case of James Stith v. U.S. Railroad Retirement Board. The petitioner had previously appealed to that Court the Board’s decision affirming the appeals referee's finding that the petitioner was not entitled to an annuity based on total and permanent disability. On August 11,1987, the Court issued an order finding that there was substantial evidence to support the appeals referee’s finding that the petitioner could perform other regular work available in the economy and the appeals referee’s rejection of testimony as to the side effects of a painkilling drug used by the petitioner. However, the Court remanded the case for consideration of whether full-time work might necessitate use of the drug at a frequency that could cause addiction.
On remand, the RRB’s Director of Hearings and Appeals found that the petitioner could perform sedentary work that allowed him to change positions without taking the drug more frequently than the intermittent use reported by his treating physicians. The Board issued a decision adopting the recommended decision of the Director of Hearings and Appeals. On May 29,1990, the Court affirmed the decision of the Board stating that the reports of the petitioner’s two treating physicians supported the finding that the levels of activity associated with the contemplated employment should not lead to pain necessitating addictive dosages of the drug. The Court further stated that, in rejecting the examining physician’s opinion, the Director of Hearings and Appeals was merely resolving conflicts in the evidence, which is the express function of a factfinder.
The petitioner in McCoy v. Railroad Retirement Board, filed in the Court of Appeals for the Fifth Circuit on May 3,1990, seeks judicial review of a decision of the Board that the tier I amount of a disability annuity under the Railroad Retirement Act be reduced for receipt of a State disability benefit.
The tier I computation of the two-tier annuities provided under the Railroad Retirement Act is the amount that would be payable under the Social Security Act if the employee’s railroad earnings had been creditable under that Act. Since the Social Security Act requires a reduction in disability benefits for receipt of another disability benefit from a State or local government, the Board determined that the same reduction should be applied to the tier I computation under the Railroad Retirement Act.
A petition for review was filed in the United States Court of Appeals for the Sixth Circuit on June 2, 1989, in the case of Frank C. Gutierrez n. U.S. Railroad Retirement Board.
In September 1986 the denial of the petitioner’s application for a disability annuity was affirmed following reconsideration by the RRB’s Bureau of Retirement Claims. An appeal to the RRB’s Bureau of Hearings and Appeals on August 4,1988, was dismissed for the reason that it was not timely filed and this dismissal was affirmed by the Board.
The Court found the Board’s decision, that the appeal to the Bureau of Hearings and Appeals was not timely filed, was supported by substantial
50
evidence, and therefore the Court had no jurisdiction to review the Board’s refusal to allow the appeal; accordingly, the Court dismissed the petition for want of jurisdiction.
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 1990, the Bureau of Hearings and Appeals rendered decisions in 935 appeals under the Railroad Retirement Act. The initial or reconsidered decision was sustained in 358 cases and reversed in 475 cases. One hundred and two appeals were dismissed and 494 were pending at the end of the year.
One hundred thirty-four appeals were filed with the Board in fiscal year 1990, which, added to the 79 appeals carried over from the previous year, brought the total to be considered to 213. Of 87 decisions, 76 sustained previous rulings of the Bureau of Hearings and Appeals . Five of the appeals were remanded to the Office of Retirement and Survivor Programs for favorable action, three were remanded to the Bureau of Hearings and Appeals, one was remanded to the Bureau of Disability and Medicare Operations, one was dismissed for failure to file timely, and one was dismissed at the appellant’s request. At the end of the year, 126 appeals were pending before the Board.
Railroad Unemployment Insurance Act
During fiscal year 1990, the Bureau of Hearings and Appeals rendered decisions in 95 appeals under the Railroad Unemployment Insurance Act. The original decision was sustained in 68 cases and reversed in 17 cases. Ten appeals were dismissed and 64 were pending at the end of the year.
Twenty appeals were filed with the Board in fiscal year 1990, which, added to the eight carried over from the previous year, brought the total to be considered to 28. The Board rendered decisions in 11 cases of appeals from the decision of the Bureau of Hearings and Appeals, affirming the decision in all of them. At the end of the year, 17 appeals were pending before the Board.
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Consolidated Financial Operations
FINANCIAL HIGHLIGHTS
The Railroad Retirement Board's unaudited Statements of Financial Position, Operations and Changes in Equity Balances, and Cash Flow for the fiscal year ended September 30, 1990, with comparative figures for FY 1989, were prepared on a consolidated basis (which eliminates all significant interfund balances and transactions) and separately for each fund. 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 General Accounting Office and the Treasury. FY 1989 figures have been restated to conform to the presentation used for FY 1990.
Financing Sources
For FY 1990, as compared to FY 1989,
- - Total financing sources increased by a net of $198.1 million or 2.13 percent.
- - Payroll taxes decreased by $199.3 million or 4.74 percent. This decrease is primarily the result of tax refunds to carriers of $43.4 million, a 3 percent decline in railroad employment and an increase in the average wage per employee of only 1 percent.
- - FI transfers, and SSA and HCFA reimbursements increased 7.31 percent and 5.54 percent respectively.
- - Investment income increased by only 0.48 percent because interest payments of $66 million on carriers' tax refunds were offset against current year's interest income. Interest payments on carriers' tax refunds in FY 1989 amounted to only $12.1 million. Investment income actually increased 7.2 percent exclusive of these interest refunds.
- - The RRB received 0.28 percent more from its general fund appropriation (net of amounts returned to the Treasury) for vested dual benefit payments.
- - Federal income tax transfers increased $115 million or 95.83 percent primarily because the FY 1989 amount included an IRS downward adjustment of $139 million to reflect actual tax receipts for calendar year 1987.
- - RUI contributions decreased by $3.8 million or 1.81 percent primarily because of a $4.8 million refund issued to AMTRAK in September 1990. This refund was a result of the AMTRAK Reauthorization and Improvement Act of 1990 which authorized AMTRAK to be treated in the same manner and to pay contributions at the same rate as publicly owned commuter railroads, retroactive to January 1, 1989.
- - Railroad unemployment repayment taxes for FY 1990 increased by 45 percent over FY 1989. However, repayment tax collections in FY 1989 were abnormally low because of the implementation, in January 1989, of provisions in the Railroad Unemployment Insurance Improvement Act of 1988 to (1) change from taxing the first $7,000 in wages paid annually to a monthly base ($710 a
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month for calendar year 1989 and $745 a month for 1990) and (2) decrease the tax rate from 6 percent to 4 percent. Because repayment taxes for October 1 to December 31, 1988, were collected under the annual wage basis (where few taxes were collected late in the calendar year) and taxes for January 1 to September 30, 1989, were collected under the monthly basis (where taxes are collected evenly throughout the year), railroad unemployment repayment taxes for FY 1989 were unusually low. A better measure of the effect of the new law is to compare FY 1988 where the annual wage base and the 6 percent tax rate were in effect for the entire year against FY 1990 where the monthly wage base and the 4 percent tax rate were in effect for the entire year. Repayment taxes actually decreased by 17.9 percent in FY 1990 as compared to FY 1988.
The following table shows the amount of financing for FY 1990 and FY 1989 by source and the amount and percentage change from FY 1989.
FINANCING SOURCES (In thousands)
Fiscal year Change from 1989
1990 1989 Amount Percent
Payroll taxes $ 4,005,790 $ 4,205,067 $ -199,277 -4.74
FI transfers 2,880,850 2,684,667 196,183 7.31
SSA and HCFA reimbursement 947,793 898,048 49,745 5.54
Interest on investments 787,567 783,772 3,795 .48
General fund appropriations,
net of amounts returned to
the Treasury 320,831 319,930 901 .28
Federal income taxes 235,000 120,000 115,000 95.83
RUI contributions 205,032 208,808 -3,776 -1.81
Railroad unemployment
repayment taxes 114,717 79,143 35,574 44.95
Total financing sources $ 9,497.580 $ 9.299.435 $ 198,145 2.12
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Total financing sources amounted to $9,497,580,000, an increase of $198,145,000 from FY 1989. The percentage distribution of FY 1990 financing by source is shown below.
Payroll Taxes 42.18% $4,005,790
SSA & HCFA Reimb. 9.98% $947,793
Other 5.84% $554,749
Interest 8.29% $787,567
Appropriations 3.38% $320,831
Fl Transfers 30.33% $2,880,850
(In thousands)
Expenditures
Expenditures during FY 1990 increased by 4.52 percent. This increase is composed of a 4.35 percent increase in benefit payments, a 5.51 percent increase in benefits paid on behalf of SSA, a 5.45 percent increase in interest expense for loans against the FI, and a 4.91 percent increase in salaries and administrative expenses.
The following table shows the amount of expenditures for FY 1990 and FY 1989 by type and the amount and percentage change from FY 1989.
EXPENDITURES
(In thousands)
Fiscal year Change from 1989
1990 1989 Amount Percent
Benefit payments - RRB $ 7,323,066 $ 7,017,473 $ 305,593 4.35
Benefit payments on behalf
of SSA 943,207 893,979 49,228 5.51
Interest expense 257,672 244,358 13,314 5.45
Salaries and expenses 84,216 80,276 3,940 4.91
Total expenditures $ 8.608.161 1 8,236.086 $ 372,075 4,52
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Total expenditures of $8,608,161,000 increased by $372,075,000 from FY 1989.
The percentage distribution of FY 1990 expenditures by type is shown below.
Benefits - RRB $7,323,066
85.07%
(In thousands)
Comparison of Revenues and Expenditures
Revenues exceeded expenditures during FY 1990 by approximately $890 million. Revenues and expenditures (as restated) for FY 1986 through FY 1990 are shown below.
REVENUES AND EXPENDITURES FISCAL YEARS 1986 TO 1990
■ Revenues Expenditures
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RR Investments
On September 30, 1990, the book value of the RR Account investments totaled $8,651,345,468. Of this amount, $4,511,045,000 consisted of 8.625 percent par value specials (with market value equal to face value) maturing October 1, 1990. The remaining $4,140,300,468 was invested in market-based notes and bonds maturing from July 15, 1991, to November 15, 2004, with yields ranging from 8.20 percent to 12.52 percent. The average yield on all holdings of the RR Account for FY 1990 was 9.40 percent.
Investments in the SSEB and RRS Accounts at September 30, 1990, totaled $867,368,000 and $47,005,000, respectively. Both amounts were invested in 8.625 percent par value specials maturing on October 1, 1990. The average yield on all holdings of the SSEB and RRS Accounts for FY 1990 was 8.45 percent.
The book value of all of the RR investments during FY 1990 increased from $8,764,449,023 to $9,565,718,468. During the same period, the market value of these investments increased from $9,146,024,539 to $9,825,595,573.
The following graph reflects the growth in the RR book value of investments from $6.1 billion at September 30, 1986, to $6.9 billion at September 30, 1987, $8.0 billion at September 30, 1988, $8.8 billion at September 30, 1989 and $9.6 billion at the end of FY 1990.
INVESTMENT BALANCES AT SEPTEMBER 30, 1986 TO 1990
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Accounts Receivable - Benefit Overpayments
In November 1989, our new Program Accounts Receivable system became operational. The new system is used for the collection of program-related debts (from beneficiaries, railroad employers and third party insurers) under the Railroad Retirement and the Railroad Unemployment Insurance Acts. Using off-the-shelf software developed by a computer software vendor, the system offers several major advantages over the old processing methods. Advantages include better control over aging accounts, application of interest and penalty charges to overdue amounts, more timely and consistent follow-up on debt collection, and improved management information reporting.
During FY 1990, the RRB established $70.2 million in benefit overpayment accounts receivable, collected $61.1 million, wrote-off $1.2 million as uncollectible and increased the allowance for doubtful accounts by $0.2 million.
In FY 1990, the RRB referred 1,727 delinquent railroad retirement and unemployment and sickness insurance debts, totaling $2,013,631 to the IRS for collection by offset against any income tax refund due the debtors. The IRS recovered $351,634 in 876 cases. An additional 228 debtors paid $46,500 after the RRB informed them that their debt would be referred to the IRS. Of the 14 Federal agencies participating in the IRS offset program, the RRB had the highest percentage of debts recovered from tax refunds (50.7 percent) and the second highest percentage of recoveries (17.5 percent).
Also in FY 1990, the RRB referred 125 delinquent railroad retirement debts totaling $180,080 to a private collection agency. This agency recovered $25,524.
Railroad Unemployment Insurance Account Loans
The loans and interest due the RR Account decreased in FY 1990 from
$592.6 million to $357.4 million. This net decrease of $235.2 million is the result of a direct cash repayment of $ 163.0 million and the application of $112.4 million in repayment taxes against the loans and interest balance offset by an increase in interest due on the loans of $40.2 million. The cash repayment, along with the unemployment repayment tax that will remain in force at 4 percent until the loans and interest are fully repaid, should allow the debt to be repaid and the repayment tax to expire some time in 1994, barring a major decrease in railroad employment.
Cash Management
The RRB's cash management program, which began in FY 1983, is one of the four most successful in the Federal government. Since its inception, the RRB has put into place a number of initiatives such as accelerating RR and UI tax deposits, using the FEDWIRE system for tax receipts, installing a lockbox for the collection of Medicare premiums, encouraging direct deposit of benefit payments and employee salaries and using Diners Club cards for travel expenses. From these and other initiatives, the RRB has realized over $301.3 million in additional interest income since the program began.
The RRB has been working actively with the IRS to establish procedures to improve the flow of tax deposit information to the RRB. Currently, we are considering using the Automated Clearing House (ACH) network to collect railroad retirement
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taxes and railroad unemployment insurance contributions. The ACH system would provide (1) detailed information on tax deposits, (2) more accurate recording of tax receipts to our trust funds, (3) added assurance that the trust funds are correctly credited for all tax receipts, (4) a reduction in rail employers' cost of making tax deposits and (5) an increase in earnings on investments due to a reduction in the time for receipts to be credited to the trust funds.
The RRB also employs a number of cash management techniques to minimize its cash balance in non-interest bearing checking accounts, maximize its investment income and monitor its tax receipts. During FY 1990, interest on investments totaled $787,566,311, an increase of 0.5 percent over FY 1989.
Actuarial Forecast
Presented in note 20 to the consolidated financial statements are our actuarial estimates of (1) the difference between future financing sources and expenditures for the RR Account between October 1, 1990, and December 31, 2061, and (2) the actuarial position of the account as of September 30, 1990. The actuarial position (surplus/deficiency) is not reflected in the financial statements because the specific criteria applied to annuity-type plans for recognizing an asset or a liability for future benefit payments are not met. 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.
The actuarial surpluses and deficiencies presented in the notes to the financial statements are based on future financing sources and expenditures for future entrants as well as former and present railroad employees. In its most recent update to the 17th Actuarial Valuation, the RRB's chief actuary concluded 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 long-term stability of the system, however, is still questionable."
The Commission on Railroad Retirement Reform, which was established by the Congress in 1988 to conduct "a comprehensive study of the issues pertaining to the long-term financing of the railroad retirement system", recently concluded in its final report that the railroad retirement system is financially sound in the intermediate term. The Commission also stated that it was not unlikely that the system is financially sound over the long-range future (the next 75 years). However, to increase the financial stability of the system, the Commission recommended a change to a financing mechanism less dependent on employment levels than the present system.
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CONSOLIDATED STATEMENT OF
FINANCIAL POSITION (Unaudited) Railroad Retirement Board
As of September 30, 1990 1989
ASSETS
Fund balance with Treasury (Note 2) Accounts receivable - $ 218,195,924 $ 253,741,180
FI 3,043,800,000 2,863,600,000
Taxes 206,242,000 208,096,000
Interest 158,508,778 128,241,698
Benefit overpayments (Note 3) 62,147,542 54,452,144
Others 4,510,333 4,047,854
Accrued unemployment insurance contributions receivable 59,714,197 53,820,077
Inventory (Note 4) 418,229 317,800
Investments (Note 5) 9,565,718,468 8,764,449,023
Property and equipment (Note 6) 6,113,136 3,626,758
Leased property (Note 7) 2,280,804 0
Total Assets $13,327.649.411 ... $12,334,392,534
LIABILITIES Accounts payable -FI $ 2,369,200,000 $ 2,299,000,000
Benefits 637,064,537 593,845,253
FHI 323,004,000 332,400,000
Uncashed checks (Note 8) 9,241,978 10,770,416
Vendors and suppliers 6,213,808 8,122,519
Capital lease (Note 7) 1,685,543 0
Accruals - Interest payable to FI and FHI 119,142,325 119,655,877
Payroll and benefits 1,208,320 1,109,411
Annual leave 3,844,394 3,527,484
Advances payable 521,628 1,823,197
Other liabilities 103,486 111,091
Total Liabilities 3,471,230,019 3,370,365,248
EQUITY Invested capital 7,126,626 3,944,558
Unfunded annual leave (deficit) (3,844,394) (3,527,484)
Unobligated balance (Note 9) 9,844,942,223 8,956,698,495
Unobligated prior year balances (Note 10) 8,194,937 6,911,717
Total Equity 9,856,419,392 8,964.027,286
Total Liabilities and Equity $13,327,649.411 $12.334,392.534
See accompanying notes to consolidated financial statements
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CONSOLIDATED STATEMENT OF
OPERATIONS AND CHANGES IN EQUITY BALANCE (Unaudited)
Railroad Retirement Board
For the fiscal year ended September 30. 1990 1989
FINANCING SOURCES General fund appropriations for dual
benefits $ 321,000,000 $ 324,740,000
Returned to the general fund of the
Treasury (Note 11) (169,467) (4,809,854)
Revenue -
FI transfers (Note 12) 2,880,850,337 2,684,667,178
Payroll taxes (Note 13) 4,005,790,218 4,205,067,310
SSA and HCFA reimbursements 947,793,243 898,047,653
Interest on investments and other
income (Note 14) 787,566,311 783,772,120
Federal income tax transfers (Note 15) 235,000,000 120,000,000
RUI contributions 205,032,252 208,808,238
Railroad unemployment repayment taxes 114,717,000 79,143,035
Total Financing Sources 9,497,579,894 9,299,435,680
EXPENDITURES
Benefit payments 7,323,065,629 7,017,473,129
Benefit payments on behalf of SSA 943,206,805 893,978,966
Interest expense - FI 257,672,056 244,358,028
Salaries and expenses 84,216,498 80,276,248
Total Expenditures 8,608,160,988 8,236,086,371
NET RESULTS (Note 16) 889,418,906 1,063,349,309
EQUITY BALANCE, BEGINNING OF PERIOD 8,964,027,286 7,897,457,922
Prior period adjustment (Note 17) 2,973,200 3,220,055
EQUITY BALANCE, END OF PERIOD $9.856.419,392 $8,964,027,286
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
Railroad Retirement Board
For the fiscal year ended September 30,____________1990________________1989
Beginning fund balance with
Treasury (Note 2) $ 253,741,180 $ 65,276,888
SOURCES OF FUNDS
General fund appropriations for dual
benefits 321,000,000 324,740,000
Returned to the general fund of the
Treasury (Note 11) (169,467) (4,809,854)
Revenue 9,176,749,361 8,979,505,535
Increase in payables 95,271,333 84,867,184
Increase in receivables (213,007,469) (178,734,606)
Increase in unemployment
contributions receivable (5,894,120)__________(7,983,077)
Total Sources of Funds 9,373,949,638_______9,197,585,182
APPLICATION OF FUNDS
Expenditures 8,608,160,988 8,236,086,371
Less ( ): Expenses not requiring outlays (4,829,399) (2,522,175)
Capital expenditures 4,893,860 936,315
Increase in investments 801,269,445 777,840,434
Prior period adjustment (Note 17) ____________0___________(3,220,055)
Total Application of Funds 9,409,494,894______9,009,120,890
Ending fund balance with
Treasury (Note 2) $ 218,195,924 $ 253,741,180
See accompanying notes to consolidated financial statements.
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RAILROAD RETIREMENT BOARD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED SEPTEMBER 30, 1990 AND 1989
1. SIGNIFICANT ACCOUNTING POLICIES
o General The financial statements were prepared on the accrual basis of accounting and in accordance with the principles and standards prescribed by the General Accounting Office and the Treasury. Statements for the Dual Benefits Payments Account were, however, prepared on a cash basis of accounting as required by law.
o Principles of Consolidation The consol idated financial statements include all funds maintained by the RRB, after elimination of all significant interfund balances and transactions.
2. FUND BALANCE WITH TREASURY - Funds with the Treasury were comprised of the fol lowing:
At September 30, 1990 1989
Social Security Equivalent
Benefit Account $ (3,190,139) $(10,599,289)
Railroad Retirement Account (6,525,676) (5,739,119)
Railroad Retirement Supplemental
Account 41,321 586,679
Railroad Unemployment Insurance
Account 215,200,417 262,340,941
Railroad Unemployment Insurance
Administration Fund 6,226,825 4,387,695
Railroad Retirement Administration
Fund 5,338,921 726,990
Office of Inspector General
Administration Fund 622,432 214,086
Regional Rail Protective Account 481,823 1,823,197
Total $218,195,924 $253,741,180
For the RUI Account and the RUI Administration Fund, only a small portion of the cash is in non-interest bearing accounts. 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. The fund earned an average rate of return of 8.86 percent in FY 1990 and 8.67 percent in FY 1989, of which the RRB earned $18,874,782 and $18,952,006, respectively, as its pro rata shares. All other cash shown above is being held in non-interest bearing checking accounts to pay current obligations. The credit balances in the SSEB and RR Accounts are a result of practices to maximize interest income on trust fund reserves. Sufficient invested funds are available to cover these credit balances.
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3. ACCOUNTS RECEIVABLE - BENEFIT OVERPAYMENTS - The amounts shown are net of allowances for doubtful accounts of $3,394,432 and $3,190,344 at September 30, 1990 and 1989, respectively.
4. INVENTORY - Inventory consists of operating supplies and is valued on the moving average cost basis.
5. INVESTMENTS - Trust fund balances not immediately required for the payment of 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 investments.
The investment portfolio consisted of the following:
________At September 30, 1990_________ Book value Market value
Treasury securities:
8.625% par value specials
maturing on October 1, 1990 $5,425,418,000 $5,425,418,000
Market based notes and bonds with maturities ranging from July 15, 1991, to November 15, 2004, and yields ranging from
8.20% to 12.52% 4,140,300,468 4,400,177,573
Total $9,565.718.468 $9.825,595,573
________At September 30, 1989_________ Book value Market value
Treasury securities:
8.375% par value specials
maturing on October 2, 1989 $3,843,375,000 $3,843,375,000
Market based notes and bonds with maturities ranging from February 15, 1990, to May 15, 2004, and yields ranging from 8.84% to 12.52% 4,921,074,023 5,302,649,539
Total $8,764,449,023 $9.146,024,539
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6. PROPERTY AND EQUIPMENT - Property and equipment increased substantially during FY 1990 due to the capitalization of computer software and systems furniture. These assets are stated at cost less accumulated depreciation/ amortization of $7,715,636 and $3,448,662 at September 30, 1990, and 1989, respectively. 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.
7. LEASED PROPERTY - The RRB has entered into a noncancellable capital lease for computer disk storage devices under which ownership of the equipment covered under this lease transfers to the RRB when the lease expires. Lease payments of $1,685,543 remain to be paid on this lease as of September 30, 1990. When the RRB entered into this lease, the value of the future lease payments was capitalized and recorded as a liability.
8. ACCOUNTS PAYABLE - UNCASHED CHECKS - Under Public Law 98-76, the amount of RR 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 principal amount of uncashed checks must remain in a liability account until the RRB determines that entitlement to the payment no longer exists.
9. UNOBLIGATED BALANCE - The balances include $200,000 at the end of each fiscal year which are not available for obligation pursuant to Public Laws 101-239, 101-166, and 100-436.
10. UNOBLIGATED PRIOR YEAR BALANCES - The balances include $2,112,000 at September 30, 1990, and $1,912,000 at September 30, 1989, which are not available for obligation pursuant to Public Laws 100-436, 100-202, 99-500, 99-591 and 100-71; the remaining amounts of $6,082,937 and $4,999,717 at September 30, 1990, and 1989, respectively, are available only to liquidate valid obligations incurred in prior years.
11. RETURNED TO THE GENERAL FUND OF THE TREASURY - Amounts returned to the Treasury consisted of the following:
1990 1989
Unexpended appropriated general funds $ 193,658 $4,839,725
Interest on uncashed checks 57,208 4,317
Adjustment for the principal of prior year uncashed checks (81,399) (34,188)
Total $ 169.467 $4.809,854
12. FI TRANSFERS - These amounts represent the estimated amounts due from the OASI-DI Trust Funds less the estimated amounts to be transferred to the FHI Trust Fund. The net amounts are computed as follows:
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Estimated amounts due at September 30,1990 1989
Transfer from OASI-DI $3,229,344,000 $3,061,739,000
Interest income on FI advances 7,822,337 8,181,178
Less - Transfers to FHI:
Principal (322,904,000) (350,300,000)
Interest (33,412,000) (34,953,000)
Total $2,880,850,337 $2,684,667378
The FI is intended to place the OASI-DI and FHI Trust Funds in the same position in which they would have been had railroad employment been covered by the Social Security and Federal Insurance Contribution Acts. The law requires the transfer, including interest accrued from the end of the preceding fiscal year, to be made in June of the following year.
13. PAYROLL TAXES - The FY 1990 amount is net of carriers' refunds (principal of $43,411,421). The FY 1989 amount includes $94,738,489 for adjustments made by Treasury to reflect actual collections for FY's 1986 and 1987, and is net of carriers' refunds (principal of $9,621,778).
14. INTEREST ON INVESTMENTS AND OTHER INCOME - The amounts shown are net of interest on carriers' refunds of $66,020,320 and $12,132,250 in FY's 1990 and 1989, respectively.
15. REVENUE - FEDERAL INCOME TAX TRANSFERS - The amounts shown are net of Treasury adjustments of $5 million made in FY 1990 for the 1984 through 1986 IRS tax reconciliation and $139 million in FY 1989 for the 1987 IRS tax reconciliation.
16. NET RESULTS - Regional Rail Protective Account balances of $51,607 and $3,205 are not included for FY's 1990 and 1989, respectively, because these amounts represent advances from CONRAIL and the FRA.
17. PRIOR PERIOD ADJUSTMENT - The FY 1990 amount represents the capitalization of computer software ($5,143,500) acquired in prioryears less accumulated amortization ($2,170,300). This amount does not appear in the Cash Flow Statement because the cost of this computer software was expensed in prior years. The FY 1989 amount represents the deobligation of prioryears' funds, as recommended in the OIG's audit report "Review of the Railroad Retirement Board's Merged ("M") Accounts", dated October 13, 1989.
18. CONTINGENT LIABILITIES - The RRB is involved in the following actions:
o The Santa Fe Terminal Services, an affiliate of the Atchison, Topeka and Santa Fe Railroad, filed a claim for refund of taxes paid under the Railroad Retirement Tax Act on grounds that the company engages in trucking services exempt from the coverage. It is reasonably possible that the SSEB Account and RR Account are contingently liable for an estimated $8 mill ion.
o Nancy Johnson, et al, filed a class action suit representing all widows and spouses receiving annuities based on having children in care who are not receiving railroad retirement social security equivalent benefits
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because the children are age 16 but less than age 18. It is reasonably possible that the RR Account is contingently liable for an estimated $3 million
o The City of Galveston, Texas filed a claim for refund of taxes paid under the Railroad Retirement Tax Act for employees allegedly not engaged in rail carrier service. It is reasonably possible that the SSEB Account and RR Account are contingently liable for an estimated $2.7 million.
o 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 IRS that the holding company is an employer under the RR Act by performing services in connection with railroad transportation. The Union Pacific Corporation filed a claim for refund of the taxes it paid. It is reasonably possible that the SSEB Account and the RR Account are contingently liable for an estimated $1 million.
o There are nine appeals from denials of disability, two appeals from determinations of annuity computation, one appeal from denials of waiver of recovery of erroneous payments, and one case concerning a list of names and addresses of RR Act annuitants which was denied by the RRB under the Freedom of Information Act. It is reasonably possible that the RR Account is contingently liable for an estimated $132,000.
o There is one appeal from denial of benefits under the RUI Act. It is reasonably possible that the RUI Account is contingently liable for an estimated $1,000.
These potential liabilities have not been reflected in the financial statements because sufficient assets exist to cover them and, if settled, they will have no material effect on the financial position of the funds.
19. RESTATEMENTS - Restatements have been made to the FY 1989 financial statements to conform to the presentation used in FY 1990.
20. ACTUARIAL PROJECTION - Table 1 presents an actuarial analysis of the financial position of the RR account. The figures in the table are based on (1) the 17th Actuarial Valuation of the assets and liabilities under the RR Act as of December 31, 1986, and (2) the 1990 actuarial report in accordance with Section 502 of the Railroad Retirement Solvency Act, Public Law 98-76. The figures take into account the provisions of the Railroad Unemployment Insurance and Retirement Improvement Act of 1988. The present values in Table 1 are based on estimates of contributions and expenditures through the year 2061 (the last of the 75 years projected in the 17th Actuarial Valuation). 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, and employment assumption E, as used in the 17th Actuarial Valuation and the Section 502 report. Under employment assumption E from the 17th Actuarial Valuation, starting with an average 1987 employment of 317,000, (1) railroad passenger employment would hold at its then present level of 46,000, (2) Class I railroads would eliminate a total of 50,000 positions in freight service by the end of 1991 as a result of
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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 of 3.0 percent.
The Section 502 report updated the starting point to an average employment of 304,000 in 1989 and assumed, for employment assumption E , that
(1) passenger employment will remain at the level of 46,000, (2) Class I railroads eliminated 8,000 of the 50,000 previously described freight service positions by the end of 1989 and will eliminate the remainder by the end of 1993, and (3) the employment base, excluding the positions in (1) and (2), will decline at a constant annual rate of 3.0 percent.
The Commission on Railroad Retirement Reform concluded that, of the five sets of employment assumptions used in the 17th Actuarial Valuation, employment assumption D is the most reasonable and most predictive. Employment assumption E, though less favorable than employment assumption D, was used in Table I on the basis that a conservative assumption was appropriate for evaluating amounts projected many years into the future.
The 17th Actuarial Valuation includes an illustration of the minimum funding requirements if the railroad retirement system had to satisfy the standards specified in the Employee Retirement Income Security Act (ERISA) on the valuation date (December 31, 1986). Under the illustration, there would have been an "unfunded actuarial accrued liability" for former and present railroad employees in excess of $32 billion (subsequently changed to $34 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 compared with the actuarial deficiency in the footnote to Table 1; rather, it is an indication, based on ERISA funding methods, 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 through the 2061, it does not provide information about the level of the 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 2 presents projected account balances under employment assumption E and shows that there would be a sufficient account balance to make benefit payments throughout the entire projection period.
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Table 1. Actuarial Position of the Railroad Retirement Account at September 30, 1990
Present values in mill ions of dol1ars
ACTUARIAL BALANCE AT SEPTEMBER 30, 1990 $ 9,911*
FINANCING SOURCES October 1, 1990, to December 31, 2061
Retirement taxes 42,399
Transfers from supplemental account 622
Available from SSEB Account 1,687
Income taxes on benefits 269
Total 44,977
EXPENDITURES October 1, 1990, to December 31, 2061
Benefit payments 52,980
Administrative expenses 995
Total 53,975
DEFICIENCY OF EXPENDITURES OVER FINANCING SOURCES (8,998)**
ACTUARIAL SURPLUS AT SEPTEMBER 30, 1990 $ 913 ***
* This balance differs from the actual trust fund balance shown in the Statement of Financial Position of $9,052 million because of adjustments resulting from present value calculations. For example, the interest rates used to calculate present values reflect expected earnings on par value specials. Because September 30, 1990, market-based note and bond holdings have yields higher than these interest rates, the present value of future income from these holdings (coupons and maturity values) is greater than the book value of these holdings reflected in the trust fund balance shown in the Statement of Financial Position.
* * This figure takes into account future new entrants as well as former and present railroad employees.
*** This amount is based on employment assumption E. Use of the five sets of employment assumptions used in the 17th Actuarial Valuation and Section 502 report result in a deficiency of $8,590 million to a surplus $6,084 million.
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Table 2. 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 ye balance
1991 $ 9,766 2008 $ 15,744
1992 10,257 2009 15,886
1993 10,680 2010 15,948
1994 11,037 2011 15,913
1995 11,327 2012 15,755
1996 11,622 2013 15,498
1997 11,924 2014 15,155
1998 12,261 2015 14 608
1999 12,631 2020 10,774
2000 13,035 2025 7,306
2001 13,462 2030 6,600
2002 13,856 2035 9,637
2003 14,241 2040 16,363
2004 14,605 2045 26,364
2005 14,952 2050 36,876
2006 15,272 2055 43,199
2007 15,540 2060 44,834
Note: Balances through calendar year 2014 are based on the 1990 actuarial report prepared in accordance with Section 502 of the Railroad Retirement Solvency Act, Public Law 98-76. Balances shown for calendar year 2015 and thereafter are based on the 17th Actuarial Valuation. All balances were calculated using employment assumption
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Eighteenth Actuarial Valuation
UNITED STATES OF AMERICA
Railroad Retirement Board
844 RUSH STREET
CHICAGO. ILLINOIS 60611
BOARD MEMBERS:
Glen L. Bower (Chairman)
C.J. Chamberlain (Labor)
Andrew F. Reardon (Management)
June 28, 1991
Honorable Dan Quayle President of the Senate Washington, DC 20510
Dear Mr. President:
Enclosed for the consideration of the Congress is the 18th actuarial valuation of the railroad retirement system. The valuation incorporates the report required by Section 502 of the Railroad Retirement Solvency Act of 1983, Public Law 98-76. Section 502 requires the Railroad Retirement 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 does not recommend any financing changes.
Our joint statement regarding the actuarial status of the railroad retirement system is included at the front of the valuation report.
C. J. Chamberlain
F. Reardon
Enclosure
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UNITED STATES OF AMERICA
Railroad Retirement Board
844 RUSH STREET
CHICAGO, ILLINOIS 60611
BOARD MEMBERS:
Glen L. Bower (Chairman)
C.J. Chamberlain (Labor)
Andrew F. Reardon (Management)
June 28, 1991
Honorable Thomas S. Foley
Speaker of the House of Representatives
Washington, DC 20515
Dear Mr. Speaker:
Enclosed for the consideration of the Congress is the 18th actuarial valuation of the railroad retirement system. The valuation incorporates the report required by Section 502 of the Railroad Retirement Solvency Act of 1983, Public Law 98-76. Section 502 requires the Railroad Retirement 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 does not recommend any financing changes.
Our joint statement regarding the actuarial status of the railroad retirement system is included at the front of the valuation report.
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UNITED STATES OF AMERICA
Railroad Retirement Board
844 RUSH STREET
CHICAGO, ILLINOIS 60611
BOARD MEMBERS:
Glen L. Bower (Chairman)
C.J. Chamberlain (Labor)
Andrew F. Reardon (Management)
STATEMENT OF THE RAILROAD RETIREMENT BOARD
Section 15(g) of the Railroad Retirement Act of 1974 requires that the Railroad Retirement Board, at intervals not longer than three years, estimate the liabilities created by the Act and include the estimate in its annual report. Section 502 of the Railroad Retirement Solvency Act of 1983, Public Law 98-76, requires that the Board submit to the Congress, by July 1 of each year, a report on the actuarial status of the railroad retirement system. The 18th valuation was prepared by the Board’s Chief Actuary and meets both of these requirements. The Actuarial Advisory Committee reviewed the valuation as to assumptions and methods as required by Section 15(f) of the Railroad Retirement Act.
The Omnibus Budget Reconciliation Act of 1987 provided for the creation of the Commission on Railroad Retirement Reform. The Commission was to conduct a comprehensive study of alternative methods of financing the railroad retirement system, and it could also consider changes in benefits. The Commission completed its study and published a final report in September 1990. The report concluded that the railroad retirement system is financially sound in the intermediate term and, quite probably, over the long-range future. Further, the report recommended no increase in tax rates under the present benefit structure. As indicated in both the report of the Chief Actuary and the statement of the Actuarial Advisory Committee, the Commission recommended that the current transfer of income tax revenue to the railroad retirement system be continued on a permanent basis. This recommendation was made in conjunction with other recommendations for structural changes to the railroad retirement system.
The Chief Actuary’s report describes the results of four valuations, each valuation differing from the others as to the employment assumption on which it is based. An actuarial deficiency exists only under the most pessimistic employment assumption. Even under that assumption, there would be no cash flow problem until the year 2012.
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Section 502 of the Solvency Act requires recommendations with respect to tax rates and 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. The Chief Actuary’s report does not recommend a change in the tax rate, nor does it recommend a diversion of taxes from the Railroad Retirement Account to the Railroad Unemployment Insurance Account.
The Board Members believe that the 18th valuation presents a fair picture of the financial condition of the railroad retirement system, and we support the conclusions reached in the report.
The Railroad Retirement Board wishes to thank the members of the Actuarial Advisory Committee for their assistance in this important project.
C. J. Chamberlain
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STATEMENT OF THE ACTUARIAL ADVISORY COMMITTEE May 10, 1991
Railroad Retirement Board 844 Rush Street
Chicago, Illinois 60611
Gentlemen:
This statement sets forth the Committee's review of the eighteenth actuarial valuation of the railroad retirement system. This valuation, performed as of December 31, 1989, was completed in the spring of 1991 by Mr. Maynard I. Kagen, Chief Actuary of the Railroad Retirement Board, and his staff. In both the planning and carrying out of the valuation, the Committee has counseled with Mr. Kagen as to the strycture, actuarial methods, actuarial assumptions, and procedures of the valuation and as to the scope and content of his report. In all, the Committee has met with the Chief Actuary on August 30, 1989, November 13, 1990, and May 10, 1991 for the purpose of reviewing and discussing the significant elements of the eighteenth valuation.
The Committee believes the actuarial assumptions are reasonable, and that the valuation results present a fair picture of the financial condition of the railroad retirement system. This review identifies and comments upon the results and findings of the valuations described in the Chief Actuary's report.
It has been three years since the report on the seventeenth valuation was prepared. In the intervening years, the Commission on Railroad Retirement Reform was formed and issued a report. The Commission recommended that the transfer of income taxes on benefits to the Railroad Retirement Account be made permanent.
Section 502 of the Railroad Retirement Solvency Act requires the Board to report to Congress on the actuarial status of the railroad retirement system each year. The report must include recommendations for any desireable financing changes. The first such report was included as a part of the report on the sixteenth valuation. As in the seventeenth valuation and the two intervening years since the seventeenth valuation was prepared, the Chief Actuary recommends no increase in revenues to the railroad retirement system.
The employment assumptions used in this year's valuation resulted in a more optimistic financial picture than the one based on the assumptions used in the prior valuation report.
The Committee acknowledges the valuable help of the Board and of the Chief Actuary and his staff in the Committee's review of this valuation.
Respectfully submitted,
Regina Van Valkenburgh, M.A.A.A., Chairperson Peter A. Bleyler, M.A.A.A.
Robert E. Larson, M.A.A.A.
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REPORT OF THE ACTUARY
I. INTRODUCTION
The Railroad Retirement Act of 1974 requires that the Railroad Retirement Board, at intervals of not more than three years, prepare actuarial valuations of the railroad retirement system. Section 502 of the Railroad Retirement Solvency Act of 1983 requires the Railroad Retirement Board to prepare an annual report on the actuarial status of the railroad retirement system and to submit the report 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, the 18th actuarial valuation, is intended to meet both requirements for 1991.
II. SUMMARY OF RECENT DEVELOPMENTS AND RESULTS
Recent Section 502 reports have discussed in detail the importance of the level of railroad employment to the railroad retirement system's financial stability. The payroll tax on railroad employment has been the major source of income to the system since its establishment in the 1930's. It is clear that the fewer railroad workers there are, the less money the retirement account collects in payroll taxes, and the more likely the system is to require additional funds. Declines in railroad employment over a long period, coupled with inflation and subsequent benefit increases, required legislation to strengthen the system's financial condition in 1974, 1981 and 1983.
Further unfavorable employment led to recommendations in both the 1986 and 1987 Section 502 reports to increase payroll taxes. These recommendations eventually led to legislation (Omnibus Budget Reconciliation Act of 1987) that increased the combined employer and employee tier 2 tax rate from 19 percent to 21 percent, effective January 1, 1988. The increased payroll tax was reflected in the projections made for the 17th valuation. The result was that, even under the most pessimistic employment assumption, cash flow problems did not arise for over 20 years. Also based on a recommendation made in the 1987 Section 502 report, the Reconciliation Act provided for the creation of the Commission on Railroad Retirement Reform. The Commission was to conduct a comprehensive study of alternative methods of financing the railroad retirement system, and it could also consider changes in benefits.
Because of the improved financial condition of the railroad retirement system resulting from the payroll tax increase in 1988 and the anticipated analysis of the system by the Commission on Railroad Retirement Reform, the 17th valuation (1988 Section 502 report) did not recommend further payroll
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tax increases. Since the time of the 17th valuation report, employment levels have been generally favorable, and the cash flows projected in both the 1989 and 1990 Section 502 reports have shown results similar to those in the 17th valuation. Because of this and the work being carried on by the Commission on Railroad Retirement Reform, neither of those reports recommended a change in the tier 2 tax rate.
The Commission completed its study and published a final report in September 1990. Some of the significant recommendations and conclusions in the report, reflecting on the financial condition of the railroad retirement system, are as follows:
1. The railroad retirement system is financially sound in the intermediate term.
2. It is quite probable that the railroad retirement system is financially sound over the long-range future. However, to ensure long-range soundness, a "partial-pegged payroll" tax should be substituted for the current tier 2 tax. Under this recommendation, tax income would not solely depend on the employment level, and the tax rate would be adjusted on a regular basis to maintain retirement account balances at a moderate level.
3. Employment assumption D in the 17th valuation (the most optimistic of the five assumptions used) is the most reasonable and the most predictable of the five assumptions.
4. The current transfer of income tax revenue to the railroad retirement system should continue on a permanent basis.
5. No increase in the tier 2 tax rate is recommended if the present benefit structure remains unchanged.
The 18th valuation has been prepared under four assumptions as to the future behavior of railroad employment. Employment assumption I is based on a projection model used by the Commission on Railroad Retirement Reform. This model recognizes differences in activities among Class 1, regional and passenger railroads, and it relates employment to these activities. It is the most optimistic of the four employment assumptions. Employment assumptions II and III are updates of employment assumptions D and E, respectively, used in the 17th valuation. These two employment assumptions are 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 1 railroads (the larger freight railroads) developed by the Association of American Railroads. Employment assumptions II and III are intended to provide a range of "moderate" assumptions. Employment assumption IV follows the structure of assumptions II and III, except that it has declines in passenger employment and steeper declines in freight employment than employment assumptions II and III. It is intended to be a pessimistic assumption.
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The specific results of the projections made in this report of the railroad retirement system's financial condition are as follows:
1. Under employment assumption I, an actuarial surplus of 3.67 percent of tier 2 payroll exists as of December 31, 1989. There are no cash flow problems during the 75-year projection period.
2. Under employment assumption II, an actuarial surplus of 2.08 percent of tier 2 payroll exists as of December 31, 1989. There are no cash flow problems during the projection period.
3. Under employment assumption III, there is a slight actuarial surplus of 0.03 percent of tier 2 payroll as of December 31, 1989. However, cash flow problems arise in 2024 and remain until 2043. There are no cash flow problems from 2043 to the end of the projection period.
4. Under employment assumption IV, an actuarial deficiency of 3.89 percent of tier 2 payroll exists as of December 31, 1989. Cash flow problems arise in 2012 and remain through the remainder of the projection period.
The surplus or deficiency figures given above represent the tax rate changes, effective January 1, 1990, which would produce a balance of zero in the combined Railroad Retirement and Social Security Equivalent Benefit Accounts at the end of the 75-year projection period. The actuarial deficiency under employment assumption IV could be eliminated by a future tax increase or reduction in benefits amounting to 4.40 percent of tier 2 payroll, effective January 1, 1992.
The projections take into account the transfer to the railroad retirement system of revenues derived from the income tax on system benefits. This transfer was most recently extended through September 30, 1992. The Commission on Railroad Retirement Reform recommended that this transfer be continued on a permanent basis. Calculations were made of the effect of permanent transfers on cash flow projections and actuarial position under employment assumptions III and IV. Under employment assumption III, there would be no cash flow problem; and there would be an actuarial surplus of 1.71 percent. Under employment assumption IV, the cash flow problem would be deferred to 2017; and the actuarial deficiency would be 1.89 percent.
The conclusion is that, barring a sudden, unanticipated, large drop in railroad employment, the railroad retirement system will experience no cash flow problems during the next 20 years. The long-term 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 additional corrective action is necessary.
As mentioned earlier, this report is intended to meet the requirements of Section 502 of the 1983 Solvency Act. Section 502 requires recommendations with regard to the (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 Railroad Retirement Account.
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1. This report does not recommend any change in the rate of tax imposed on employers and employees.
The corrective action taken in the 1987 Omnibus Budget Reconciliation Act has postponed the date of any projected cash flow problem for at least 20 years. Furthermore, Congressional hearings are scheduled to discuss the recommendations of the Commission on Railroad Retirement Reform. Since there is no compelling need for a change in tax rates, the best course seems to be to await the results of the hearings.
2. No diversion of taxes from the Railroad Retirement Account to the Railroad Unemployment Insurance Account is recommended at this time.
The Railroad Unemployment Insurance and Retirement Improvement Act of 1988 made provision for the total repayment, including interest, of the debt of the Railroad Unemployment Insurance Account to the Railroad Retirement Account. Based on the projections made for this report, the loan will be totally repaid by 1994.
Section V of this report presents details of the valuations under the four sets of employment assumptions.
III. REGULAR AND SUPPLEMENTAL BENEFITS AND FINANCING
The Appendix contains a detailed description of the provisions of the current law. Sections III and IV provide a more general summary of the law.
Railroad retirement benefits are paid from four accounts: the Railroad Retirement (RR) Account, the Social Security Equivalent (SSEB) Account, the Railroad Retirement Supplemental Account, and the Dual Benefits Payments Account. Because of their intertwined nature, the RR Account and the SSEB Account are discussed together in part A of this section. The Railroad Retirement Supplemental Account is discussed in part B. Dual benefits and the Dual Benefits Payments Account are discussed in a separate section, Section IV.
A. The Railroad Retirement and Social Security Equivalent Benefit Accounts
Benefits paid from the RR and SSEB Accounts consist mainly of monthly payments to retired or disabled employees, their spouses, and survivors. The various types of benefits and their eligibility requirements are described in the Appendix. The accounts also pay out relatively small amounts in lump sums to employees and their survivors in certain cases. The monthly benefits consist of two components, known as tier 1 and tier 2.
For all categories of recipients, the gross tier 1 benefit is generally equivalent to the benefit that the social security system would pay if all the employee's earnings (railroad and non-railroad) had been covered under the Social Security Act. Any benefit actually received from social security is subtracted to determine the net tier 1 benefit payable. Section IV explains the logic behind this determination. The cost-of-living increase paid to social security beneficiaries automatically carries over to the tier 1 component of railroad retirement annuities.
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There are some differences between social security benefits and tier 1 benefits. The most significant are as follows:
1. An employee may not retire before age 62 under the social security system. Under the railroad retirement system, an employee may retire at age 60 with 30 years of service. If the employee retires before age 62, the tier 1 benefit will be reduced (tier 2 benefit is not reduced) by the same percentage that social security would apply to an employee retiring at age 62 (currently 20 percent). The reduced tier 1 benefit will be frozen until the employee reaches age 62, at which time it will be recomputed to reflect increases in national wage levels. Thereafter, the benefit will rise with increases in the cost of living.
If the 30-year employee retires at age 62 or later, the tier 1 benefit will not be reduced. The spouse of a 30-year employee may also receive a benefit at age 60. The spouse's tier 1 benefit is reduced if the employee's tier 1 benefit is reduced, even if the spouse does not retire until age 62.
2. Railroad retirement pays an occupational disability benefit under tier 1 and tier 2. Social security requires total and permanent disability. The same five-month waiting period applies under both systems.
3. Widows who retire at age 60 or 61 under railroad retirement are deemed age 62 in the computation of the tier 1 benefit, resulting in a smaller age reduction than under social security.
4. From the start of the railroad retirement system through 1984, earnings up to a monthly maximum amount were taxed and credited for benefit computation purposes. Social security has always used an annual earnings limit. The 1983 Solvency Act changed railroad retirement to an annual earnings limit for 1985 and later years, but benefit computations for new beneficiaries will reflect the pre-1985 use of a monthly limit for many years into the future. All benefits awarded before 1985 reflect a monthly limit exclusively.
Tier 2 is the component of railroad retirement which is comparable to a private pension. Under the formula adopted in 1981, the employee tier 2 benefit is equal to 0.7 percent of the employee's average monthly railroad earnings for the 60 months of highest earnings, multiplied by the number of years of railroad service, less 25 percent of any vested dual benefit. The tier 2 benefit for spouses is equal to 45 percent of the employee's tier 2 benefit.
The 1981 amendments brought about a transition to a new survivor benefit formula. For any survivor awarded a benefit after September 30, 1986, the survivor's tier 2 benefit is a specified percentage of the employee's tier 2 benefit. The Appendix lists the percentages.
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Tier 2 benefits for employees, spouses and survivors are subject to cost-of-living increases equal to 32.5 percent of the percentage increase which is used in computing social security increases (and tier 1 increases). The increase is paid at the same time as the tier 1 cost-of-living increase.
The portion of tier 1 benefits which is considered equivalent to social security benefits is subject to Federal income tax under the rules that apply to social security benefits. Tier 2 benefits, the portion of tier 1 benefits in excess of social security benefits, supplemental annuity benefits, and vested dual benefits are subject to Federal income tax under the rules that apply to private pensions.
Benefits paid from the RR and SSEB accounts are financed by the following sources of income:
1- Payroll tax. Employees and employers pay a tax at the social security rate on earnings in a year up to the social security, or tier 1, earnings limit. This tax is called the tier 1 tax. In addition, under the 1987 Budget Reconciliation Act, employers pay a tier 2 tax equal to 16.10 percent of the employee's earnings up to the tier 2 earnings limit, and employees pay a tier 2 tax of 4.90 percent. The tier 2 earnings limit is what the social security limit would be if the 1977 social security amendments had not been enacted. The 1991 earnings limits are $53,400 and $39,600 for tier 1 and tier 2, respectively.
2. Income tax. The 1983 Solvency Act provided for the revenue derived from taxing pre-October 1988 RR Account benefits (tier 2 and the excess of tier 1 over the social security level) and vested dual benefits to be transferred to the RR Account. Subsequent legislation has extended the transfer of taxes on tier 2 benefits, with the most recent extension covering benefits paid through September 30, 1992.
The tax on tier 1 benefits up to the social security level is credited to the SSEB Account and then to social security through the financial interchange.
3. Work-hour tax. Part of the tax collected for the Railroad Retirement Supplemental Account, which is computed in terms of cents per hour worked, is transferred to the RR Account. This will be discussed in part B, where supplemental annuities and their financing are described.
4. Revenue from a temporary "Railroad Unemployment Repayment Tax." For several years, the Railroad Unemployment Insurance (RUI) Account was able to meet its benefit obligations only with the assistance of loans from the RR Account. The 1983 Solvency Act instituted a special tax for the purpose of reducing the amount owed by the RUI Account to the RR Account. The tax, paid by employers, took effect on July 1, 1986 and was scheduled to end on September 30, 1990. The Railroad Unemployment Insurance and Retirement Improvement Act of 1988 (1) replaced the previous schedule of varying tax rates with a fixed 4 percent rate, to be applied to the first
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$710 (indexed) of monthly earnings, and (2) provided that the tax would continue until the amount owed by the RUI Account to the RR Account is eliminated. The projections made for this report indicate that this will occur in 1994.
5. Investment income.
6. The financial interchange with the social security system. This extremely important arrangement, which will be discussed in detail in Section IV, has resulted in the large annual lump sum transfers of money from social security to railroad retirement shown in Table 12.
7. Advances from general revenues related to certain features of the financial interchange. Financial interchange transfers are made in a lump sum for a whole fiscal year in the June following the end of that fiscal year. For example, the transfer reflecting transactions which occurred from October 1988 through September 1989 (fiscal year 1989) took place in June 1990. At any time, therefore, there are between 9 and 21 months' worth of financial interchange transfers which are, in a sense, owed to the railroad retirement system. Railroad retirement receives interest on this money, so this practice does no long-term harm to the financial condition of the railroad retirement system. The lag in the transfers, however, could cause short-term cash flow problems.
In order to avoid the cash flow problems caused by this lag, the 1983 Solvency Act provided for monthly loans to railroad retirement from U.S. Treasury general funds. Each loan is egual to the transfer the Railroad Retirement Board estimates railroad retirement would have received in the preceding month, with interest, if the financial interchange with social security were on an up-to-date basis. Railroad retirement must repay these loans when it receives the transfer from social security against which the money was advanced.
The 1983 Solvency Act created the SSEB Account, effective October 1, 1984. Before that date, all tier 1 benefits, tier 2 benefits, lump sums and administrative expenses had been paid from the RR Account, and all the income described above had been credited to the RR Account. Since then, the SSEB Account has paid the social security level of benefits and the administrative expenses allocable to that level of benefits. The tier 1 portion of the payroll tax, the income taxes on the social security level of benefits, the income from the financial interchange, and the advances from general revenues are credited to the SSEB Account. Repayment of the advances is made from the SSEB Account.
If the balance in the SSEB Account is insufficient to pay benefits, the RR Account must lend the SSEB Account the amount reguired to enable it to meet its obligations. The SSEB Account is to pay any debt built up in this manner by transferring to the RR Account the amounts it receives through the financial interchange and the general revenue advances, up to the amount of the outstanding loan.
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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 benefits. These transfers are not required to be repaid.
B. The Railroad Retirement Supplemental Account
A railroad retiree may receive a supplemental annuity in addition to his regular annuity if (1) he has a "current connection" with the railroad industry at the time of retirement, and (2) he has attained age 65 with 25 years of railroad service, or attained age 60 with 30 years of railroad service. A current connection is generally defined as at least 12 months of railroad service in the 30 months preceding retirement.
The 1981 amendments added the requirement that an employee must have worked in the railroad industry before October 1, 1981 to receive a supplemental annuity. This provision will result in phasing out the supplemental annuity over a long period. The last supplemental annuity check will probably not be paid until after 2050.
The monthly supplemental annuity benefit is $23, plus $4 for each year of service in excess of 25, with a maximum benefit of $43. No cost-of-living increases are applied. Spouses and survivors do not receive a supplemental annuity.
If the recipient of a supplemental annuity receives a private pension from his railroad employer, the supplemental annuity is reduced by the portion of the private pension which is attributable to the employer's contributions. This reduction is not made if the private pension is reduced for receipt of the supplemental annuity. The Railroad Retirement Board returns the resulting savings in supplemental annuities to the employer in the form of tax credits.
Employers bear the full cost of supplemental annuities. Financing is on a pay-as-you-go basis. The tax rate is promulgated by the Railroad Retirement Board every quarter and is expressed in terms of cents per hour worked. For the first half of 1991, the rate is 26 cents per hour. The Railroad Retirement Board attempts to set a rate which will hold for an entire calendar year; but a decision is made every quarter, and a change during the year is possible. Supplemental annuities awarded before 1975 were equal to $45 per month, plus $5 per month for each year of service in excess of 25, with a maximum benefit of $70. The work-hour tax is calculated to be enough to pay benefits on the basis of this formula. Since awards after 1974 are based on the $23-$43 formula described earlier, the tax income is more than sufficient to pay the benefits. The excess is transferred-from the Railroad Retirement Supplemental Account to the RR Account to finance the increase in costs resulting from the elimination (in the 1974 Act) of the reduction in the regular annuity for receipt of a supplemental annuity.
Employers maintaining negotiated pension plans are exempt from the work-hour tax with respect to employees covered by the negotiated plans. (This applies mainly
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to railroads owned by steel companies.) The employees, however, are entitled to supplemental annuities under the same conditions as all other employees. Employers pay for these annuities on an actual cost basis.
IV. DUAL BENEFITS, THEIR FINANCING, AND THE FINANCIAL INTERCHANGE
In the early 1950's, an arrangement known as the financial interchange was established between the railroad retirement and social security systems. The purpose of the financial interchange is to place the social security trust funds in the same financial position they would have been if railroad employment had always been covered under social security. If railroad employment had been covered under social security, social security would have collected taxes on railroad employment, and it would have paid benefits based on railroad employment. Under the financial interchange, the railroad retirement system gives the social security system the taxes social security would have collected, and the social security system gives the railroad retirement system the additional benefits social security would have paid to railroad workers and their families over what it actually pays them.
The word "additional" in the preceding sentence is important, because it is possible for a railroad employee to be covered under both railroad retirement and social security. The social security coverage may be based on earnings from moonlighting while in a railroad job or from coverage under the two systems at different times. Fulfilling the purpose of the financial interchange requires deducting from social security's fund only the difference between what social security would have paid had it covered railroad employment, and what it actually pays the person based on his non-railroad employment. Under the financial interchange, therefore, social security subtracts an employee's social security benefit from the amount it would otherwise give to the railroad retirement system.
This arrangement gave rise to problems which became acute in the early 1970's. The problems arose from the weighting in the social security formula in favor of low-earning, short-service workers. A railroad employee's non-railroad earnings usually added little to the benefit social security would have paid on combined railroad and non-railroad earnings (called gross tier 1 today). However, the employee might qualify for the minimum social security benefit, receiving much more from social security than his non-railroad earnings added to his gross tier 1 benefit.
The following example of two hypothetical employees may clarify the problem. The size of the benefits is appropriate to the early 1970's. The employees are assumed to have identical dates of birth, dates of retirement, and histories of railroad earnings. One employee, however, is assumed to have had just enough covered employment under social security to qualify for a social security benefit. (The difference in railroad retirement benefits arises from minor reductions in the 1937 Act formula for receipt of a social security benefit.)
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Eligible for social security Not eligible for social security
A. Railroad retirement benefit $380 $400
B. Social security benefit 100 -
C. Total benefit, A + B 480 400
D. Social security benefit on combined earnings (gross tier 1) 240 220
E. Financial interchange transfer from social security to railroad retirement, D - B 140 220
F. Amount to be financed by excess of railroad retirement taxes over social security taxes, A - E 240 180
Two conclusions are apparent. First, the employee with benefits under both
systems received an advantage over the career railroad worker, which many considered unfair. In the example, the employee who is eligible for social security collects $80 more than the employee who is not eligible (the difference in line C); while, under a completely integrated system, the social security earnings would have added only $20 (the difference in line D). Second, because social security subtracted the social security benefit in calculating the financial interchange transfer, railroad retirement paid most of the cost of these benefits. In the example, this is represented by the $60 difference in line F.
This situation was a major cause of the poor financial condition of the railroad retirement system in the early 1970's. In order to improve the system's financial condition, the Railroad Retirement Act of 1974 provided that the tier 1 component of the railroad retirement annuity be reduced by any social security benefit. This essentially integrated the two systems and eliminated the advantage of qualifying for benefits under both systems.
However, it was generally considered unfair to eliminate this advantage entirely for those already retired or close to retirement when the 1974 Act became effective. The 1974 Act, therefore, provided for a restoration of social security benefits which were considered vested at the end of 1974. The restored amount is known as the "vested dual benefit". This benefit was available to qualifying spouses and survivors as well as to qualifying employees.
For employees retiring in 1975 or later, the vested dual benefit was to be equal to
(1) a social security benefit based on social security earnings, plus
(2) a social security benefit based on railroad earnings, minus
(3) a social security benefit based on combined railroad and social
security earnings.
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Social security or railroad earnings after 1974 were not to be included in this calculation. The "social security benefit" referred to in (1), (2) and (3) is the one which would have been calculated at the end of 1974. The resulting amount was to be increased by all the automatic social security cost-of-living adjustments between 1974 and the date the employee retired.
For spouses and survivors, the formulas were different and more complicated than that for employees.
The 1974 Act authorized 25 level annual appropriations from the general funds of the Treasury (one for each of the fiscal years 1976-2000) for the financing of vested dual benefits and specified that the amount to be appropriated was to be determined by the Railroad Retirement Board and re-evaluated periodically. The amount was to be enough to pay for the benefits (many of which will be payable after 2000) and for any loss of interest caused by paying the benefits, reduced by the gain to the Railroad Retirement (RR) Account caused by the liberalized investment rules of the 1974 Act.
Congress's rationale for an appropriation from the general funds was that the existence of separate railroad retirement and social security systems had caused the railroads to pay more for social security benefits than had other employers. Social security taxes are the entire cost of social security benefits to other private industries, whereas the railroad industry had paid the dual benefit cost as well as the social security taxes (hypothetical example given earlier). The rationale further stated that this was a flaw in the law which the 1974 Act was designed to phase out; therefore, the financial consequences should be borne by the general funds, not the railroad industry.
The 1974 Act did not work out as anticipated. The original estimate of the level appropriation needed to finance the vested dual benefit, made before enactment of the 1974 Act, was $250 million per year for each year from 1976 through 2000.
This estimate was revised substantially upward, to $350 million and then to $499 million, in the 13th and 14th actuarial valuations, respectively. The major reasons were:
1. The effect of the high rate of inflation on vested dual benefits first awarded after 1974 was not foreseen in the original estimate.
2. By the time of the 14th valuation, the actual appropriations for fiscal years 1977-79 and the appropriations expected for fiscal 1980 were all less than the $350 million recommended in the 13th valuation. The total difference for the four years, plus loss of interest, had to be made up in future appropriations if all vested dual benefits were to be paid from general funds.
3. The Railroad Retirement Board's records grew progressively more reliable. More individuals were found to be entitled to vested dual benefits than had originally been anticipated.
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The Carter Administration succeeded in reducing the Railroad Retirement Board's request for vested dual benefit financing to either the original estimate or an amount much lower than recommended. The Administration drafted legislation which would have placed a maximum of $350 million on the appropriation. Although the proposal was never enacted, it seemed certain that the amount appropriated would never exceed $350 million in a year.
There was no provision in the law to reduce vested dual benefits if the appropriation was less than required for full funding. This meant that other income (mainly railroad retirement taxes) had to be diverted to make up the shortfall in the appropriation. The resulting drain on the RR Account contributed to the cash-flow crisis predicted for 1982 or 1983.
The 1981 amendments to the Railroad Retirement Act drastically changed this situation. Since October 1981, vested dual benefits have been paid from a segregated Dual Benefits Payments Account, and appropriations have been made to that account. The legislation changed the financing from a level payment basis to a pay-as-you-go basis. This meant that, starting in fiscal year 1982, each annual appropriation is to be sufficient to pay the benefits for that year. Appropriations will continue until well into the 21st century instead of stopping in 2000. If the appropriation for a fiscal year is less than required for full funding, the Railroad Retirement Board must reduce benefits to a level which the amount appropriated will cover.
The appropriation for vested dual benefits in fiscal year 1982 was less than required for full funding, resulting in a cutback in benefits during that year. Full funding was restored for the last two months of fiscal year 1982. The appropriation was less than required in fiscal year 1986, resulting in a cutback during April-September of that year. The appropriation was again less than required in fiscal year 1988, which resulted in a cutback during Apri1-September. For years other than those mentioned, full benefits have been paid.
The 1981 amendments made significant changes regarding vested dual benefits. Spouses and survivors were not to be awarded vested dual benefits after August 13, 1981, though they would continue to receive these benefits if they were awarded before that date. Also, vested dual benefits awarded to employees would take into account cost-of-living increases only through 1981, rather than through the date of retirement.
The creation of the Dual Benefits Payments Account, and the associated cutback provision, resolved the problem of the drain on the RR Account with respect to vested dual benefits paid after September 1981. There was no provision under the 1981 amendments, however, for compensating the RR Account for having absorbed the excess of vested dual benefit payments over appropriations between January 1975 and September 1981. The shortfall would have continued to grow when the effect of interest is included. The amount involved was substantial.
The 1983 Solvency Act provided for funding the shortfall in three installments. The three installments, technically loans, occurred in January of 1984, 1985 and 1986. They amounted to $628.8 million, $706.4 million, and $793.2 million,
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respectively. Each installment represented one-third of the amount needed to place the RR Account in the same position it would have been if vested dual benefits been fully funded for the period from January 1, 1975, through September 30, 1981, with interest through the date of transfer. The loans must be repaid only to the extent that appropriations are made for that purpose.
V. ASSUMPTIONS, METHODOLOGY, AND VALUATION RESULTS
A. Assumptions and Methodology
Average railroad employment is assumed to be 296,000 in 1990 under each of the four employment assumptions. This was the actual average for the year and is higher than that projected for 1990 under any of the employment assumptions in the 1990 Section 502 report.
Employment assumption I is based on a projection model developed for the Commission on Railroad Retirement Reform. This model assumes different patterns of employment among Class I (the larger freight railroads), passenger, and regional railroads. Particular assumptions are that (1) Class I employment will decrease from 216,000 in 1990 to 100,000 in 2016 and remain at that level, (2) passenger employment will grow from 46,000 in 1990 to 57,000 in 1999 and remain at that level, (3) regional railroad employment will be around 11,000 into the early 2000's and then decrease at the rate of 0.5 percent a year, and (4) all other employment will stay at 10 percent of combined Class I and regional railroad employment.
Employment assumptions II and III, developed by the Association of American Railroads, assume that (1) Class I railroads will eliminate the remaining 38,000 of an initial 50,000 "surplus" freight service positions by the end of 1996, as a result of crew consist and similar agreements, (2) passenger employment will remain at the level of 46,000, and (3) the employment base, excluding the positions in (1) and (2), will decline at a constant annual rate (2.0 percent for assumption II and 3.0 percent for assumption III).
Employment assumption IV differs from employment assumptions II and III by assuming that (1) passenger employment will decline to 30,000 evenly over a 32-year period and then remain level, and (2) the employment base will decline at a constant annual rate of 5.0 percent for 25 years, at a reducing rate over the next 25 years, and then remain level at 32,000.
Because inflation has been fairly stable at relatively low levels in recent years, only one set of earnings and price inflation assumptions was used in this valuation. The percentage increases are generally higher than those used in the previous valuation, and the ultimate differential in earnings and price inflation rates (0.5 percent) is greater than in the previous valuation. The interest rate assumption was chosen to maintain the same ultimate differential (2.5 percent) with the price inflation rate assumption as in the previous valuation. Table 1 shows the employment, inflation and interest rate assumptions used in the 18th valuation.
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Only one combination of non-economic assumptions (for example, rates of mortality, disability, retirement, and withdrawal) was used in this valuation. These assumptions, some of which were changed from the previous valuation to reflect recent experience, are discussed in the Technical Supplement to this report.
Projections were made for the various components of income and outgo under each employment assumption for the 75 calendar years 1990-2064. The projections of these components were combined and the investment income calculated to produce the projected balances in the RR and SSEB Accounts separately for each year. The results are summarized in Table 3. Present values of the various components of RR Account income and outgo were calculated by discounting amounts in each projection year to December 31, 1989, using the interest rate series shown in Table 1. The present values were combined to calculate the RR Account actuarial surplus or deficiency. The derivation of the surplus or deficiency appears in Table 7.
B. Valuation Results
This section sets forth the results of the valuation in the form of a discussion of the tables in which the results appear. Because it is desirable for the discussion of a table to be reasonably self-contained, there is some repetition between tables and between this section and preceding sections of this report.
Table 3. Progress of the Railroad Retirement (RR) and Social Security Equivalent Benefit (SSEB) Accounts. Projections were made for the various components of income and outgo under each employment assumption for the 75 calendar years 1990-2064. The projections of these components were combined and the investment income calculated to produce the projected balances in the RR Account and the SSEB Account at the end of each projection year. The results are summarized in Table 3.
Table 3 consists of four tables, one for each of employment assumptions I, II, III and IV. 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 3 indicates that no cash-flow problems arise under employment assumptions I or II (Tables 3-1 and 3-II). Under employment assumption III, the RR Account balance builds to a maximum of $10,220 million in 1998 and 1999, and then it begins to decline (Table 3-III). The RR Account balance would become negative in 2016 if no money were allowed to be transferred from the SSEB Account. By the end of 2015, the SSEB Account has built up a balance of $8,969 million, mainly for the reasons given in the comments to Table 7. The SSEB Account transfers enough money to the RR Account in 2016 and after to enable the RR Account to meet its obligations, but in 2024 the SSEB Account's balance becomes exhausted. At the end of that year, - $293 million is shown as the RR Account balance after transfer from the SSEB Account. Negative after-transfer 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
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assumed to transfer to the RR Account any excess of income over outgo in 2025 and later; this does not add to the RR Account's debt. The situation worsens until 2034, when the balance reaches - $6,305 million. The balance then begins to improve, and it becomes positive in 2043. Under employment assumption IV, the SSEB Account must first transfer money to the RR Account in 2009. The SSEB Account balance is depleted in 2012, and the combined accounts have a negative balance thereafter.
Table 4. Present value of benefits in millions of dollars. This table shows, for each employment assumption, the present value of tier 2 benefits and the portion of tier 1 benefits which exceeds the social security level of benefits. The portion of tier 1 benefits in excess of the social security level is referred to as "tier 1 liability". The most important components of this liability were described in Section III. The present values are shown separately by type of beneficiary (employee, spouse, aged and disabled widow(er), other survivor) and by employee status on the valuation date (retired, retired and deceased, active, inactive, future entrants).
Table 5. Present value of benefits as a percentage of the present value of tier 2 payrol1. The format for this table is the same as for Table 4. Each number in Table 5 was obtained by dividing the corresponding number in Table 4 by the appropriate present value of one percent of tier 2 payroll. The payroll figures are shown in Table 7.
Table 6. Balance of the Railroad Retirement and Social Security Equivalent Benefit Accounts as of December 31, 1989. This table derives the balance in the two accounts on an accrual basis as of December 31, 1989. The accrual adjustment is the amount due and unpaid on that date. The accrual basis is appropriate for present value calculations.
The item captioned "Future income from market-based specials" is the present value, as of December 31, 1989, of the income stream flowing from the securities shown in Table 2. The income stream from these securities consists of coupons and face amounts available at maturity. The purchase price of market-based specials purchased in 1990 was regarded as a negative income item in 1990 in the calculation of this present value. It is assumed that market-based specials are held to maturity, at which time the proceeds are invested in par value specials.
The amount captioned "Financial interchange - OASDI" is the transfer from social security to the SSEB Account of the excess of the OASDI (Old-Age, Survivors, and Disability Insurance) benefit payments and related administrative expenses due the railroad retirement system over the OASDI taxes due social security. The transfer is made in June for the fiscal year ending the preceding September 30. The $3,693 million in the table is the amount transferred in June 1990 for the fiscal year ending September 30, 1989, plus that part of the transfer to be made in June 1991 that relates to experience for October-December 1989.
The amount captioned "Financial interchange - HI" is the transfer from the SSEB Account to social security of the hospital insurance taxes collected by the Railroad Retirement Board. The period covered is the same as for the OASDI accrual adjustment.
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The item "Advances against the financial interchange" is the amount, ..including interest to December 31, 1989, that the Treasury has loaned to the SSEB Account in anticipation of the SSEB Account's receipt of the financial interchange transfer from social security. As explained in Section III, the SSEB Account will repay the advances made in a fiscal year when it receives the financial interchange transfer for that year; in the meantime, this item is a liability.
The balance of the debt owed by the Railroad Unemployment Insurance Account to the RR Account has not been included in the RR Account balance as an asset. Projected repayments of the loan are included as an income item in Table 3 and as a prospective asset in Table 7.
Table 7. Actuarial surplus or (deficiency) for Railroad Retirement Account under employment assumptions I, II, III and IV. The top half of Table 7 expresses the asset and liability components of the actuarial balance as present values in dollars. The bottom half expresses these components as a percentage of tier 2 payroll. The actuarial surplus or deficiency was calculated for the RR Account, but not for the SSEB Account, for th6 following reason.
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 exceeded or were less than benefits. However, the SSEB Account also receives or pays any financial interchange transfers. The financial interchange transfer, subject to qualifications described in the next paragraph, should be enough to offset any surplus or deficit for the year. Furthermore, this would be the case even if the social security level of benefits or taxes are raised or lowered. The SSEB Account can thus be regarded as automatically funded, the financial interchange being the mechanism for correcting any surplus or deficiency. Therefore, the concept of actuarial balance is not meaningful when applied to the SSEB Account.
The qualification mentioned above arises because, in a relatively small number of cases, the railroad retirement system does not pay benefits when social security would pay benefits. 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 relatively small in any particular year, but substantial balances build up in the SSEB Account after a number of years.
As described in Section III, 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. The value of these transfers, or amounts available for transfer, is shown as an asset in line 6 of Table 7.
A few other items from Table 7 deserve some explanation. Line 3, "Income tax on benefits", is the present value of the revenue generated by the income tax on RR Account benefits (tier 2, plus the excess of tier 1 over social security levels). Under current law, the tax revenue derived from benefits paid through September 30, 1992 will be transferred to the RR Account. Section III described this source of income.
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As explained in part B of Section III, the work-hour tax levied on employers to finance the supplemental annuity program is calculated to be enough to pay benefits on a formula which provides $45 per month, plus $5 per month for each year of service in excess of 25, with a maximum benefit of $70. Supplemental annuities awarded after 1974 are based on a formula which provides $23 per month, plus $4 per month for each year of service in excess of 25, with a maximum benefit of $43. The excess tax is transferred from the Railroad Retirement Supplemental Account to the RR Account to finance the increase in costs resulting from the elimination (in the 1974 Act) of the reduction in the regular annuity for receipt of a supplemental annuity. The present value of these transfers is an asset, shown in line 4 of Table 7 as "Transfers from supplemental account."
The cost of the system to the railroad industry may be considered as the excess of line 2, "Retirement taxes", over line 11, "Actuarial surplus or (deficiency)". Table 7 shows that the cost of the system is much more stable when expressed in dollars than when expressed as a percentage of payroll. For example, the cost of the system under employment assumption IV is $38,978 million, or 24.89 percent of payroll; whereas the cost under employment assumption I is $43,712 million, or 17.36 percent of payroll. Using employment assumption IV as the base, the percentage cost variation in dollars between the two valuations is 12.1 percent. As a percentage of payroll, the percentage cost variation is 30.3 percent.
Table 8. Minimum contribution required under ERISA. The railroad retirement system is specifically exempt from the minimum funding provisions of the Employee Retirement Income Security Act (ERISA). In the past, there has been some interest in what the contribution requirement of the system would be if this were not the case. The following discussion does not take into account any modification of ERISA requirements brought about by the Omnibus Budget Reconciliation Act of 1987.
The railroad retirement system is currently being funded on a modified "pay-as-you-go" basis. For the most part, the funding goal is to receive enough income to the system each year to cover benefits and expenses for the year. In terms of the participants in the system, payroll taxes collected each year from rail employers and employees are used to pay benefits to rail retirees, their spouses and survivors. In contrast, ERISA essentially requires that pension plans be "advance-funded". Under this arrangement, the goal is to receive enough income to the system each year to fund benefits for employees over their working lifetimes.
ERISA recognizes that when a private pension plan is initiated, it will usually have an "accrued liability". This liability represents the value placed on future benefits and expenses of the plan that is attributable to employee service preceding the date of the plan (often referred to as "past service"). As such, the liability might be measured by the amount that would have been accumulated if contributions to fund each employee's benefits had been made from the time employment began. Since a new plan would have no funds at the time it is initiated, the accrued liability is also the unfunded accrued liability. The unfunded accrued liability is specifically identified by ERISA, because ERISA has separate funding rules for benefits based on past and future service.
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In the case of an existing pension plan which becomes subject to ERISA funding standards, as for a new plan, the accrued liability must be determined. This determination is made based on employee service preceding the date the plan becomes subject to ERISA standards, but taking into account projected future levels of employee pay. The unfunded accrued liability for an existing plan is the excess of the accrued liability over the funds on hand.
Table 8 illustrates what the minimum funding requirements would be for the railroad retirement system as of December 31, 1989, if it became subject to ERISA on that date. The unfunded accrued liability of $33,475 million shown in Table 8 may be considered to be the amount needed, in excess of funds on hand and tier 2 payroll taxes at a 6.20 percent rate, to fund RR Account benefits and expenses for former and present employees. The 6.20 percent rate (normal cost rate) is the average rate of tier 2 payroll that would fund each employee's benefits and expenses over the employee's working lifetime.
Under ERISA requirements, the minimum annual contribution to be made would be tier 2 payroll taxes at the rate of 6.20 percent, plus the level annual amount which would amortize the unfunded accrued liability of $33,475 million in 30 years. The level amount is shown as $2,560 million in line 8 of the table. Line 9 of the table expresses the minimum required contribution for 1990 ($2,560 million plus the normal cost) as a percentage of 1990 tier 2 payroll. As the table indicates, this percentage would have ranged from 31.00 percent to 31.15 percent, depending on the employment assumption used. Since the amortization payment is a level dollar amount, and since the taxable payroll would change from year to year, the required contribution expressed as a percentage of payroll would vary during the amortization period. (Line 10 of the table shows the level percentage of tier 2 payroll that would be required to fund the unfunded accrued liability and meet a 6.20 percent payroll tax over the 30 year amortization period.) Under the ERISA requirements, the minimum annual contribution after 30 years, if all assumptions were realized, would be the 6.20 percent of payroll normal cost.
In summary, the effect of ERISA would be to accelerate funding for the railroad retirement system. Instead of the level 21 percent tax rate currently being paid, ERISA would require a contribution averaging 27.10 to 33.46 percent of payroll for 30 years and 6.20 percent thereafter.
Table 9. Vested dual benefit amounts and average number of beneficiaries. This table shows a projection of vested dual benefit payments for every fiscal year from 1991 through 2005 and for every fifth year from 2010 through 2030. After 2030, the amounts become insignificant. The amounts shown assume that the benefits are fully funded. Fiscal years are shown, because vested dual benefit appropriations are made on a fiscal year basis. The table also indicates the average number of vested dual beneficiaries in each fiscal year. The table applies to all the employment assumptions discussed in this report.
The revenue derived from taxing pre-October 1988 vested dual benefits was transferred to the RR Account. The revenue derived from taxing vested dual benefits in fiscal years 1989 and later is to be transferred to the Dual Benefits Payments Account, and it will reduce the amount of the appropriation by the same amount. Therefore, the amount available for the payment of vested dual benefits is unaffected by income tax revenues derived from these benefits.
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The 1981 amendments removed much of the uncertainty from projections of future vested dual benefit payments. The volatility caused by inflation is gone, since future awards take into account cost-of-living increases from 1975 through 1981, rather than through the date of retirement. Also, no awards of these benefits to spouses or widows have been or will be made after August 13, 1981. Projecting these payments had been particularly troublesome; this was because the Railroad Retirement Board had no data on which to base estimates until the spouse or widow applied for a benefit and eligibility was determined.
Uncertainties which remain in projecting future vested dual benefit payments are when employees will retire, what their benefits will be, and when beneficiaries will die.
The projections of vested dual benefit payments by the Railroad Retirement Board are the basis for the agency's requests for appropriated amounts. Generally, a margin of about 2 percent is added to projected amounts to determine the appropriated amounts requested. This margin is needed because of the uncertainties in making projections and to ensure that adequate funds are available for the full payment of vested dual benefits. Appropriated amounts remaining in a fiscal year after all benefit payments have been made are returned to the Treasury.
Table 10. Progress of the Railroad Retirement Supplemental Account. This table shows, for each employment assumption used in this report, the tax rates reguired to support the supplemental annuity program through 2014. The tax income must be enough to cover the benefits, administrative expenses, and transfers to the RR Account. The nature of the transfers was described in part B of Section III.
Tax rates projected in the 17th actuarial valuation assumed 2400 hours per year per full-time employee not covered under a negotiated plan. Recent experience indicates that taxes are being paid on about 2220 hours per year per employee. Use of this number results in higher projected tax rates than in the 17th valuation, where comparisons can be made (employment assumptions
D and E in the 17th valuation, compared to employment assumptions II and III, respectively, in this valuation). The reduction in hours may result from a number of employers basing their tax payments on hours actually worked (regular and overtime) instead of total hours (including sick pay, vacation pay and other allowances).
97
Table 1. Employment, inflation and interest assumptions
Calendar year Average employment (Thousands) Earnings increase (Percentage increase Cost-of-1iving increase over previous year) Interest rate
I II III IV
1990 296 296 296 296 3.00% 4.70% 8.50%
1991 285 282 280 275 3.50 5.40 7.50
1992 275 271 266 257 3.90 5.00 7.00
1993 265 262 255 242 4.20 4.50 6.50
1994 256 253 245 228 4.50 4.00 6.50
1995 248 245 235 215 4.50 4.00 6.50
1996 244 237 226 202 4.50 4.00 6.50
1997 241 230 217 191 4.50 4.00 6.50
1998 238 226 212 183 4.50 4.00 6.50
1999 235 223 207 175 4.50 4.00 6.50
2000 231 219 202 168 4.50 4.00 6.50
2001 227 216 198 161 4.50 4.00 6.50
2002 223 212 193 155 4.50 4.00 6.50
2003 219 209 189 148 4.50 4.00 6.50
2004 215 206 184 142 4.50 4.00 6.50
2005 212 203 180 137 4.50 4.00 6.50
2006 208 199 176 131 4.50 4.00 6.50
2007 205 196 172 126 4.50 4.00 6.50
2008 201 193 169 121 4.50 4.00 6.50
2009 198 190 165 116 4.50 4.00 6.50
2010 194 188 161 112 4.50 4.00 6.50
2011 191 185 158 108 4.50 4.00 6.50
2012 188 182 154 104 4.50 4.00 6.50
2013 185 179 151 100 4.50 4.00 6.50
2014 182 177 148 96 4.50 4.00 6.50
2015 179 174 145 92 4.50 4.00 6.50
2016 178 171 142 89 4.50 4.00 6.50
2017 178 169 139 86 4.50 4.00 6.50
2018 178 166 136 83 4.50 4.00 6.50
2019 178 164 134 80 4.50 4.00 6.50
2020 178 162 131 78 4.50 4.00 6.50
2021 178 159 128 76 4.50 4.00 6.50
2022 178 157 126 74 4.50 4.00 6.50
2023 178 155 124 72 4.50 4.00 6.50
2024 178 153 121 71 4.50 4.00 6.50
2025 178 151 119 69 4.50 4.00 6.50
2026 178 148 117 68 4.50 4.00 6.50
2027 178 146 115 67 4.50 4.00 6.50
2028 178 144 113 66 4.50 4.00 6.50
2029 178 142 111 66 4.50 4.00 6.50
2030 178 140 109 65 4.50 4.00 6.50
2031 178 139 107 64 4.50 4.00 6.50
2032 177 137 105 64 4.50 4.00 6.50
2033 177 135 103 63 4.50 4.00 6.50
2034 177 133 101 63 4.50 4.00 6.50
2035 177 131 100 63 4.50 4.00 6.50
2036 177 130 98 62 4.50 4.00 6.50
2037 177 128 97 62 4.50 4.00 6.50
2038 177 126 95 62 4.50 4.00 6.50
2039 177 125 94 62 4.50 4.00 6.50
2040 177 123 92 62 4.50 4.00 6.50
2041 177 122 91 62 4.50 4.00 6.50
2042 177 120 89 62 4.50 4.00 6.50
2043 177 119 88 62 4.50 4.00 6.50
2044 177 117 87 62 4.50 4.00 6.50
2045 177 116 86 62 4.50 4.00 6.50
2046 177 114 85 62 4.50 4.00 6.50
2047 177 113 83 62 4.50 4.00 6.50
2048 177 112 82 62 4.50 4.00 6.50
2049 177 110 81 62 4.50 4.00 6.50
2050 177 109 80 62 4.50 4.00 6.50
2051 177 108 79 62 4.50 4.00 6.50
2052 176 107 78 62 4.50 4.00 6.50
2053 176 105 77 62 4.50 4.00 6.50
2054 176 104 76 62 4.50 4.00 6.50
2055 176 103 75 62 4.50 4.00 6.50
2056 176 102 74 62 4.50 4.00 6.50
2057 176 101 74 62 4.50 4.00 6.50
2058 176 100 73 62 4.50 4.00 6.50
2059 176 99 72 62 4.50 4.00 6.50
2060 176 98 71 62 4.50 4.00 6.50
2061 176 97 70 62 4.50 4.00 6.50
2062 176 96 70 62 4.50 4.00 6.50
2063 176 95 69 62 4.50 4.00 6.50
2064 176 94 68 62 4.50 4.00 6.50
98
Table 2. Market-based holdings of Railroad Retirement Account as of December 31, 1990
Date of purchase Date of maturity Face amount Coupon rate Investment yield
03-0ct-84 15-Aug-91 $44,402,000 14.875% 12.52%
Ol-Nov-84 15-May-94 87,742,000 13.125 11.73
02-Nov-84 15-Aug-93 96,835,000 11.875 11.74
05-Nov-84 15-Feb-92 170,290,000 14.625 11.68
09-Nov-84 15-Aug-91 42,280,000 14.875 11.66
25-Feb-85 15-May-92 22,173,000 13.750 11.88
25-Feb-85 15-May-94 22,699,000 13.125 11.95
26-Feb-85 15-May-94 13,591,000 13.125 11.92
27-Feb-85 15-May-94 45,381,000 13.125 11.96
28-Feb-85 15-May-92 17,769,000 13.750 11.94
28-Feb-85 15-May-94 13,668,000 13.125 12.04
05-Mar-85 15-Ju 1-91 9,097,000 13.750 11.91
07-Mar-85 15-May-92 8,928,000 13.750 12.11
13-Mar-85 15-May-94 27,211,000 13.125 12.03
19-Mar-85 15-Jul-91 9,120,000 13.750 12.08
09-Apr-85 15-May-94 44,627,000 13.125 11.89
12-Apr-85 15-Feb-2002 41,337,000 14.250 11.68
15-Apr-85 15-Feb-2002 165,190,000 14.250 11.68
18-Apr-85 15-Feb-2002 162,845,000 14.250 11.49
23-Apr-85 15-Feb-2002 163,123,000 14.250 11.53
25-Nov-85 15-Feb-2002 36,829,000 14.250 10.20
18-May-87 15-Feb-96 50,000,000 8.875 8.84
20-May-87 15-Feb-96 50,000,000 8.875 8.92
04-Aug-87 15-Nov-2001 50,000,000 15.750 9.05
28-Aug-87 15-Nov-96 100,000,000 7.250 9.02
28-Aug-87 15-May-2001 50,000,000 13.125 9.20
03-Sep-87 15-May-97 100,000,000 8.500 9.29
03-Sep-87 15-May-2001 50,000,000 13.125 9.48
23-Sep-87 15-Nov-96 50,000,000 7.250 9.44
23-Sep-87 15-Nov-2002 50,000,000 11.625 9.65
09-0ct-87 15-May-96 100,000,000 7.375 9.92
15-0ct-87 15-May-96 200,000,000 7.375 10.21
27-Apr-88 15-May-2004 50,000,000 12.375 9.12
18-May-88 15-Nov-2002 100,000,000 11.625 9.36
Ol-Jun-88 15-Nov-2002 100,000,000 11.625 9.29
25-Jul-88 15-Nov-2003 100,000,000 11.875 9.35
16-Aug-88 15-Feb-2003 100,000,000 10.750 9.60
28-Sep-88 15-Aug-2003 100,000,000 11.125 9.26
08-Nov-88 15-Nov-2003 100,000,000 11.875 9.02
18-Nov-88 15-Aug-2003 100,000,000 11.125 9.21
28-Dec-88 15-May-96 100,000,000 7.375 9.52
10-Feb-89 15-Jul-93 100,000,000 7.250 9.34
22-Jan-90 15-May-95 200,000,000 12.625 8.32
26-Apr-90 15-May-95 100,000,000 12.625 9.10
27-Apr-90 15-May-95 100,000,000 12.625 9.10
17-Aug-90 15-Nov-2004 100,000,000 11.625 9.07
28-Aug-90 15-Nov-2004 100,000,000 11.625 9.16
10-0ct-90 15-Aug-2005 100,000,000 10.750 9.10
99
100
Table 3-1. Progress of the Railroad Retirement (RR) and Social Security Equivalent Benefit (SSEB) Accounts under Employment Assumption I (Dollar amounts in millions) ----------------Railroad Retirement Account_ Social Security Equivalent Benefit Account_ Combined Benefits Tax Other Balance,_________________Benefits Other Tax Other Balance,______________RR and SSEB
Calendar and admin- income income end year and admin- expenses income income end year balance
Vear istration 1/ 2/ istration 3/ 4/ end year
1991 $2,645 $2,272 $865 $9,235 $4,436 $2,905 $1,731 $5,900 $824 $10,059
1992 2-712 2.325 853 9,700 4,632 2,954 1,740 5,983 962 10^662
1993 2,748 2,196 847 9,995 4,830 3,158 1,754 6,379 1,107 11,'102
1994 2-777 2,222 810 10,250 5,007 3,350 1,777 6,737 1,264 1L514
1995 2-802 2,257 747 10,452 5,157 3,528 1,806 7,049 1,434 1E886
1996 2,844 2,306 746 10,660 5,268 3,670 1,846 7,275 1,617 12277
1997 2-884 2,363 749 10,888 5,362 3,762 1,892 7,428 1,814 12*702
1998 2-925 2-428 763 11,152 5,437 3,821 1,942 7,527 2,024 13176
1999 2’962 2,490 780 11,460 5,509 3,856 1,993 7,597 2,249 13,709
2000 3,000 2,548 800 11,808 5,580 3,881 2,040 7,663 2,491 14 299
2001 3,047 2,607 819 12,187 5,641 3,908 2,086 7,720 2,748 14*935
2002 3-101 2-668 806 12,561 5,702 3,927 2,134 7,770 3,024 15585
2003 3-160 2-725 826 12,952 5,768 3,942 2,178 7,826 3,319 16^271
2004 3-223 2-783 840 13,352 5,840 3,964 2,222 7,896 3,634
2005 3-295 2,845 856 13,758 5,919 3,993 2,269 7,980 3,970 17^728
2010 3-850 3.175 988 15,521 6,555 4,316 2,512 8,832 6,043 2U564
2015 4-577 3,590 1,016 16,147 7,775 5,200 2,819 10,827 8,976 25123
2020 5-090 4,400 1,052 16,892 9,157 6,174 3,450 12,829 13,127 30,019
2025 5-213 5,548 1,347 22,245 9,924 6,297 4,371 13,163 18,917 41'162
2030 5-24l 6,971 2,211 37,084 10,305 5,571 5,514 12,167 26,894 63^978
2035 5-539 8-663 3,915 65,715 10,785 4,646 6,869 11,043 37,859 103'574
2040 6-295 10,772 6,762 113,026 11,595 3,690 8,546 10,152 52,941 165^967
2045 7-634 13,388 11,147 185,517 13,021 2,923 10,619 10,028 73,709 259^226
2050 10,078 16,654 17,601 291,671 14,950 2,490 13,203 10,717 102,336 394007
2055 15,173 20,650 26,367 434,752 16,027 466 16,368 9,150 141,807 576^559
2060 21,569 25,743 37,924 623,461 17,497 0 20,404 10,016 199,126 822587
2064 27,491 30,719 49,850 818,388 19,009 0 24,352 11,228 259,650 1,078^038
1/ Includes payroll taxes, income taxes on benefits, and tax transfers from Railroad Retirement Supplemental Account. 2/ Includes repayments on loans made to Railroad Unemployment Insurance Account and interest income.
3/ Includes repayment of advances from general revenues.
4/ Includes financial interchange income, advances from general revenues, and interest income.
101
Table 3—II. Progress of the Railroad Retirement (RR) and Social Security Equivalent Benefit (SSEB) Accounts under Employment Assumption II (Dollar amounts in millions) _________________Railroad Retirement Account_ Social Security Equivalent Benefit Account_ Combined Benefits Tax Other Balance,__________________Benefits Other Tax Other Balance,___________RR and SSEB
Calendar and admin- income income end year and admin- expenses income income end year balance,
year istration 1/ 2/ istration 3/ 4/ end year
1991 $2,645 $2,264 $863 $9,225 $4,436 $2,905 $1,725 $5,906 $824 $10,049
1992 2,712 2,309 850 9,671 4,632 2,959 1,728 6,001 962 10,633
1993 2,748 2,178 843 9,944 4,830 3,170 1,740 6,405 1,107 11,051
1994 2,777 2,204 810 10,181 5,007 3,365 1,763 6,766 1,264 11,445
1995 2,802 2,230 742 10,351 5,157 3,543 1,785 7,085 1,434 11,785
1996 2,844 2,257 738 10,501 5,268 3,690 1,809 7,333 1,617 12,118
1997 2,884 2,288 736 10,642 5,362 3,798 1,835 7,521 1,814 12,456
1998 2,925 2,331 744 10,793 5,437 3,878 1,870 7,655 2,024 12,817
1999 2,962 2,387 753 10,971 5,509 3,930 1,914 7,750 2,249 13,220
2000 3,000 2,444 764 11,180 5,580 3,965 1,959 7,827 2,491 13,671
2001 3,047 2,501 775 11,409 5,641 3,994 2,004 7,889 2,748 14,157
2002 3,100 2,557 751 11,617 5,701 4,015 2,048 7,944 3,024 14,641
2003 3,160 2,613 761 11,831 5,767 4,034 2,091 8,005 3,319 15,150
2004 3,223 2,673 764 12,045 5,839 4,058 2,136 8,075 3,634 15,679
2005 3,294 2,734 767 12,252 5,918 4,086 2,182 8,159 3,970 16,222
2010 3,845 3,064 805 12,793 6,545 4,409 2,423 9,004 6,042 18,835
2015 4,557 3,472 755 11,828 7,742 5,268 2,724 10,957 8,973 20,801
2020 5,039 4,040 627 9,777 9,095 6,352 3,168 13,224 13,118 22,895
2025 5,101 4,765 590 9,496 9,820 6,754 3,762 14,121 18,897 28,393
2030 5,008 5,605 842 14,094 10,122 6,414 4,452 13,883 26,851 40,945
2035 5,077 6,558 1,537 25,923 10,430 5,903 5,227 13,576 37,774 63,697
2040 5,497 7,630 2,776 46,547 10,970 5,499 6,085 13,777 52,775 99,322
2045 6,396 8,866 4,663 77,636 12,066 5,501 7,062 15,174 73,403 151,039
2050 8,134 10,384 7,311 120,917 13,552 6,033 8,255 17,755 101,798 222,715
2055 11,759 12,194 10,532 172,787 14,152 5,293 9,685 18,571 140,780 313,567
2060 15,699 14,440 14,290 233,505 14,903 4,234 11,472 19,750 194,245 427,750
2064 18,941 16,614 17,872 291,668 15,551 3,152 13,205 21,054 250,989 542,657
1/ Includes payroll taxes, income taxes on benefits, and tax transfers from Railroad Retirement Supplemental Account. 2/ Includes repayments on loans made to Railroad Unemployment Insurance Account and interest income.
3/ Includes repayment of advances from general revenues.
4/ Includes financial interchange income, advances from general revenues, and interest income.
Table 3-III. Progress of the Railroad Retirement (RR) and Social Security Equivalent Benefit (SSEB) Accounts under Employment Assumption III
(Dollar amounts in millions)
---—Railroad Retirement Account_ Social Security Equivalent Benefit Account_ Transfers Balance after Combined r , , Benefits Tax Other Balance._Benefits Other Tax Other Balance. from SSEB transfers from RR and SSEB
calendar and admin- income income end year and admin- expenses income income end year to RR SSEB to RR balance
year istration 1/ 2/ 3/ istration 4/ 5/ 6/ RR SSEB end year
}991 $862 $9,215 $4-436 $2-905 $1-718 $5,913 $824 $9,215 $824 $10,039
!992 2,712 2,287 846 9,637 4,632 2,965 1,711 6,023 962 9,637 962 10 599
J993 2,748 2,143 837 9,868 4,830 3,185 1,713 6,446 1,107 9,868 1,107 10^975
1994 2-777 2,153 810 10,054 5,007 3,391 1,724 6,831 1,264 10,054 1 264 11 318
1995 2,802 2,163 731 10,147 5,157 3,581 1,735 7,174 1,434 10,147 1*434 11581
1996 2,844 2,173 722 10,198 5,268 3,742 1,744 7,449 1,617 10,198 1*617 11815
1997 2,884 2,188 713 10,215 5,362 3,864 1,758 7,664 1,814 10,215 1*814 12^029
1998 2,925 713 10,220 5,437 3,957 1,782 7,823 2,024 10,220 2,024 12,244
1999 2,962 2,250 712 10,220 5,509 4,022 1,809 7,948 2,249 10,220 2 249 12469
2999 3,999 2,285 710 10,217 5,580 4,074 1,837 8,058 2,491 10 217 2*491 12708
2991 3,947 2,323 797 10,200 5,641 4,122 1,867 8,153 2,748 10,200 2*748 12948
2992 3,199 2,360 666 10,126 5,701 4,159 1,896 8,241 3,024 10,126 3024 13150
2993 3,169 2,396 657 10,019 5,767 4,194 1,923 8,333 3,319 10,019 3'319 13'338
2994 3,223 2,430 638 9,865 5,838 4,235 1,948 8,440 3,634 9 865 3 634 13499
2996 3,294 2,463 617 9,651 5,916 4,284 1,972 8,565 3,970 9’651 3*970 13'621
2919 3,841 2,669 478 7,245 6,529 4,701 2,107 9,595 6,042 7*245 6*042 13*287
h5*2 2’9°2 182 h339 7,691 6,677 2,276 i^762 8:969 1,339 to.308
2916 4,666 2,962 32 (332) 7,970 5,915 2,320 12,283 9,687 $322 0 9 355 9 355
29 7 4,786 3,926 . 79 52,169) 8,237 6,168 2,369 12,806 10,456 1,759 0 8,*287 8*287
2918 4,879 3,100 (199) (4,147) 8,498 6,413 2,425 13,309 11,280 1 779 07 133 7 133
2919 4,946 3,179 (327) (6.240) 8,760 6,641 2,487 13,796 12,161 1,766 0 5*921 5*921
2929 4,994 3,264 !462! (8,432) 8,980 6,863 2,555 14,231 13,104 1,730 0 4,*672 4*672
2921 5,024 3,354 (602) (10,704) 9,179 7,044 2,629 14,601 14,111 1,669 0 3*407 3*407
2922 6,961 3,467 S748) (13,046) 9,334 7,189 2,713 14,886 15,186 1,594 0 2*140 2*140
2923 6,962 3,661 , (896) (15,433) 9,449 7,283 2,799 15,081 16,333 1,491 0 *900 *900
2924 6,928 3,669 (1.048) (17,849) 9,543 7,328 2,882 15,213 17,556 1,085 (293) 0 (293)
2926 4,990 3,772 (1,200) (20,266) 9,593 7,346 2,974 15,268 18,860 *157 (1 406) 0 (1 406)
939 4.768 4.379 (1,953) (32,192) 9,688 7,002 3,478 14^99 26:768 ^58 5324 0 5 424
2936 4,631 5,026 (2,682) (43,745) 9,654 6,422 4,010 14,512 37,599 157 6 146 0 6*146
2949 4,789 5,736 3,420) (55,559) 9,726 5,810 4,583 14,305 52,435 157 3*124 0 3*124
2941 4,873 5,895 3,578) (58,116) 9,788 5,727 4,708 14,377 56,006 158 (2 110 0 2*110
2942 4,974 6,052 3,742 (60,781) 9,868 5,656 4,833 14,496 59,810 159 (971 0 (971
2943 6,992 6,220 3,914 (63,568) 9,972 5,604 4,965 14,665 63,864 130 166 296
2944 -9 6,413 (4,093) (66,477) 10,101 5,571 5,116 14,875 68,182 1,361 344 1 705
2946 5,385 6,613 (4,281) (69,531) 10,255 5,547 5,272 15,131 72,784 2 716 537 3*253
2969 6,796 7,592 5,434) (88,593) 11,166 5,807 6,039 17,255 100,739 10*392 1,754 12,146
2966 9,643 8,863 (7,382) (121,299) 11,435 5,086 7,040 18,145 139,077 14 319 3 459 17*778
2969 12,523 10,476 (10,612) (174,896) 11,899 4,264 8 320 19 719 191 629 10*913 S*«20 1R*733
2964 14,866 12,644 (14.350) (236,522) 12:318 3,429 9,57? 2?: 460 8349 lO^M
_1/ Includes payroll taxes, income taxes on benefits, and tax transfers from Railroad Retirement Supplemental Account.
—7 Includes repayments on loans made to Railroad Unemployment Insurance Account and interest income.
3/ For 2016 and later, balance is before transfers from SSEB Account.
4/ Includes repayment of advances from general revenues. Excludes transfers to RR Account. —/ Includes financial interchange income, advances from general revenues, and interest income.
tiZ 54.800 M 47 29 30-1/2 33 to’va
2M2 LT100 % 46 28-3/4 30 32-3/4 40-1/2
2003 142*200 ? 45 28-1/2 29-3/4 32-3/4 40-3/4
2004 138*800 « 44 28-1/4 29-1/2 32-3/4 41-3/4
005 135*600 « 43 27-3/4 29 32-1/2 42-1/4
2006 132*700 « 42 27-1/2 28-3/4 32-1/2 42-3/4
2007 130*700 85 41 27-3/4 29 32-3/4 44
2008 2«'wo 83 40 27-1/2 28-3/4 32-3/4 44-3/4
“ 126*400 £ 40 27-3/4 29 33 48-1/4
2010 : 27-3/4 I 33-1/4 47-1/2
™ 79 38 28 29 34 49-3/4 2013 19*600 ,5 38 28-1/4 29-1/4 34-1/2 51-1/4
*0 28-1/4 29-1/4 34-1/2 52-1/2
______________17,700 76 37 28-1/2 29-1/4 33-3/4 54-1/4 1/ Average number in a year. Excludes cases where the supplemental annuity is totally eliminated because of a private pension On January 1, 1990, there were about 40,000 of these cases. P pension.
~ JoC1UnS am°Unt paid as refunds for reductions in payments due to private pensions (about $20 million in 1990) and $2 million per year for administrative expenses.
3/ Benefit payments are on the $70 maximum basis for accruals before 1975 and on the $43 maximum basis for accruals after 1974 the JequU?OR^Road°Re^rem t r,S '7 emp’°yees' and the difference is transferred from the supplemental account to
ine regular Kai iroad Retirement Account.
2Ct.in\rate iS ^7 taa,1992\ Actual rate for first tWO garters 1991 is 26 cents per hour. For 1991, rates shown assume about 6°ooo'em21 9 2 h'22° H°UrS P®r year P®r employee not covered under a negotiated plan. In 1989.
about. 6,000 employees were covered under a negotiated plan. H
110
Table 11. Average number of railroad retirement annuitants
Calendar year Employment Assumption
I II III IV
1991 878,000 878,000 878,000 878,000
1992 861,100 861,100 861,100 861,100
1993 845,200 845,200 845,200 845,200
1994 828,800 828,800 828,800 828,800
1995 808,100 808,100 808,100 808,100
1996 785,600 785,600 785,600 785,600
1997 761,900 761,900 761,900 761,900
1998 736,900 736,900 736,900 736,900
1999 712,100 712,100 712,100 712,100
2000 687,700 687,700 687,700 687,700
2001 663,800 663,800 663,800 663,800
2002 641,000 641,000 641,000 641,000
2003 619,300 619,300 619,300 619,200
2004 598,700 598,700 598,600 598,500
2005 579,600 579,500 579,400 579,200
2006 562,400 562,200 562,000 561,600
2007 547,200 547,000 546,600 546,000
2008 534,100 533,700 533,200 532,300
2009 522,400 521,900 521,100 519,900
2010 511,800 511,200 510,200 508,500
2015 481,100 479,400 476,700 471,800
2020 449,200 446,300 441,200 431,500
2025 391,000 386,700 378,000 361,700
2030 325,900 319,600 305,800 280,300
2035 273,100 263,800 243,800 206,800
2040 235,800 223,300 197,300 149,600
2045 213,700 198,400 167,800 113,000
2050 204,300 185,300 151,800 94,400
2055 202,700 177,300 142,200 86,300
2060 203,300 168,600 133,200 81,700
2064 203,200 159,900 124,600 78,200
ill
Table 12. Transfers to railroad retirement system under financial interchange with social security system, 1937-1990 1/ (Millions of dollars)
Determination number Fiscal years covered Benefit credits to railroad retirement 2/ Tax credits to social security Cash transfers to 3/ railroad retirement
Amount Year of transfer
1-11 1937-62 4/ $5,229.3 $3,367.6 $1,813.5 4/ 1953-63 4/
12 1963 679.2 276.2 421.8 1964
13 1964 727.8 290.3 459.3 1965
14 1965 737.6 291.7 468.8 1966
15 1966 817.3 306.0 538.7 1967
16 1967 806.4 373.0 458.0 1968
17 1968 848.2 364.2 512.8 1969
18 1969 961.3 408.1 589.3 1970
19 1970 1,018.4 436.7 626.3 1971
20 1971 1,155.8 458.5 748.5 1972
21 1972 1,217.1 470.9 802.5 1973
22 1973 1,412.8 556.4 930.9 1974
23 1974 1,575.6 653.5 1,010.3 1975
24 1975 1,853.3 718.7 1,238.7 1976
25 1976 1,872.2 772.0 1,207.5 1977
26 1977 5/ 2,556.6 1,060.8 1,618.5 1978
27 1978 2,230.3 902.6 1,477.4 1979
28 1979 2,389.5 1,089.9 1,429.9 1980
29 1980 2,683.4 1,204.8 1,614.4 1981
30 1981 2,973.7 1,322.5 1,819.6 1982
31 1982 3,321.9 1,296.0 2,278.6 1983
32 1983 3,471.8 1,287.9 2,425.6 1984
33 1984 3,524.1 1,472.8 2,352.9 1985
34 1985 3,658.5 1,443.1 2,652.8 1986
35 1986 3,744.8 1,398.7 2,614.2 1987
36 1987 3,864.4 1,305.0 2,851.3 1988
37 1988 4,028.8 1,427.3 2,933.5 1989
38 1989 4,149.5 1,418.9 3,049.1 1990
Total 1937-1989 $63,509.7 $26,374.2 $40,944.6
1/ Financial interchange transactions with the Hospital Insurance Trust Fund are not included. These involve mainly a transfer of collected taxes to social security, with some adjustments for difference in earnings bases under the two systems.
2/ Benefit amounts were credited to Railroad Retirement Account for covered years 1983 and earlier and to Social Security Equivalent Benefit Account for covered years 1984 and later. Amounts include allowances for administrative expenses and adjustments to previous determinations.
3/ Cash transfers were made to Railroad Retirement Account in 1984 and earlier and to Social Security Equivalent Benefit Account in 1985 and later. Transfers include interest, which is not shown in table.
4/ First determinations covered period January 1937-June 1952. Initial balance of $488.2 million was never transferred to social security; only interest was paid until debt was liquidated by subsequent offsets in favor of railroad retirement. Total interest was $35.4 million.
5/ 1977 figure covered 15 months (July 1976 - September 1977) because of change in definition of fiscal year.
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APPENDIX
Outline of the benefit and financing provisions of the railroad retirement system as amended through December 31, 1990
EMPLOYEE BENEFITS
1. Normal age annuity
10 year service requirement for retirement at (a) age 65 if born before 1938, or (b) social security retirement age (see definition at end of outline) if born after 1937.
2. Prenormal age annuity
A. Eligible upon later of (1) attainment of age 60 and (2) completion of 30 years of service (60/30 eligibility).
1. If became eligible before 7-1-84, unreduced benefit for retirement at age 60. Employee deemed age 65.
2. If became eligible after 6-30-84, unreduced benefit for retirement at age 62.
3. If became eligible after 12-31-85 and employee retires before age 62, tier 1 benefit on annuity
beginning date is equal to what social security would have paid an individual retiring at age 62 after applying any age reduction, except that the number of benefit computation years depends on the employee's actual year of birth. Tier 1 benefit is frozen until attainment of age 62, when it is recomputed to equal what social security would have paid the individual had he retired at that time. Tier 2 benefit is not reduced for age. If became eligible between 7-1-84 and 12-31-85, the same procedure applies, except that the age reduction in tier 1 benefit is only one-half the amount applicable after 12-31-85.
B. Other prenormal retirements
For employees born before 1938 and retiring at ages 62-64 with 10 but less than 30 years of service, the benefit is reduced by 1/180 for each month the employee is under age 65 on his annuity beginning date. If born after 1937, the benefit is reduced by 1/180 for each of the first 36 months and by 1/240 for each additional month the employee is under social security retirement age. (Reduction for age in excess of 36 months applies only to tier 1 benefit if employee had any service before 8-12-83.)
3. Total and permanent disability annuity
10-year service requirement. Benefit may not begin earlier than the first day of the sixth month following date disability begins.
4. Occupational disability annuity
Requirement of 20 years of service or attainment of age 60 with 10 years of service; current connection (see definition at end of outline) required. Benefit may not begin earlier than the first day of the sixth month following date disability begins.
5. Supplemental annuity
Requirement of attainment of age 60 with 30 years of service if retired on or about 7-1-74, or age 65 with 25 years of service. Must have service before 10-1-81. Current connection required.
6. Vested dual benefit
A. Requirement of fully insured (see definition at end of outline) status under Social Security Act effective 12-31-74 and either (i) 25 years of railroad service before 1975 or (ii) 10 years of railroad service before 1975, with some railroad work in 1974 or a current connection on 12-31-74 or at the time the annuity begins,
or if the above conditions were not met,
8. Requirement of fully insured status under Social Security Act as of last year of railroad work before 1975 and 10 years of railroad service before 1975.
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7. Work restrictions
Suspension of annuity for any month annuitant is employed by a railroad. For disabilities, loss of one month's annuity for each $400 in excess of $4,800 earned in a year. In addition, the tier 1 portion of the annuity based on railroad earnings (see definition at end of outline) after 1974 and all social security earnings (see definition at end of outline) is subject to social security work restrictions. If annuitant is employed by last non-railroad employer preceding retirement, the tier 2 portion and the supplemental annuity are also affected, being reduced one dollar for each two dollars of railroad earnings, subject to a maximum reduction of 50 percent.
All vested dual benefits are subject to social security work restrictions.
8. Creditable service (continuity not required)
All service after December 31, 1936. Service before 1937 may be used if annuitant had employment relation on August 29, 1935 or 6 months of service after August 29, 1935 and before 1946. No limit on service except 30-year maximum if pre-1937 service used. Additional service months may be deemed where employee does not work in every month of year, but railroad earnings exceed monthly prorations of annual maximum earnings creditable.
9. Creditable and taxable railroad earnings
Maximum monthly earnings
$300 - before July 1,1954
$350 - July 1,1954-May 31,1959
$400 - June 1,1959-October 31,1963
$450 - November 1,1963-December 31,1965
$550 - 1966-67
$650 - 1968-71
$750 - 1972
$900 - 1973
$1,100 - 1974
$1,175 - 1975
$1,275 - 1976
$1,375 - 1977
$1,475 - 1978
$1,575* - 1979
$1,700* - 1980
$1,850* - 1981
$2,025* - 1982
$2,225* - 1983
$2,350* - 1984
* From 1966 through 1978, the amount was one-twelfth of the annual social security maximum. The 1977 social security amendments introduced a difference between the maximum earnings creditable for tier 1 and tier 2 benefits starting in 1979. The amounts shown for 1979-84 are the tier 2 maximums. The tier 1 maximums are $1,908.33, $2,158.33, $2,475, $2,700, $2,975 and $3,150, respectively.
Starting in 1985, earnings are credited on an annual rather than a monthly basis. The annual maximums are:
Tier 1, Tier 2
1985 $39,600 $29,700
1986 $42,000 $31,500
1987 $43,800 $32,700
1988 $45,000 $33,600
1989 $48,000 $35,700
1990 $51,300 $38,100
1991 $53,400 $39,600
10. Creditable military service and earnings
Military service is creditable in war and national emergency periods, and between June 15, 1948 and December 15, 1950, if preceded by railroad service in the year of entry into military service or the preceding year.
Earnings: $160 before 1968
$260 after 1967 but before 1975
For each calendar year after 1974, earnings are the same as that credited under social security.
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11. Basic monthly annuity formula for all types of retirement cases
Tier 1 - social security component
Social security benefit based on combined railroad and social security earnings, less social security benefit actually payable (based on social security earnings only). See item 2 for computation of tier 1 benefit for employees with 60/30 eligibility.
Tier 2 - railroad industry component
0.7% of the average monthly compensation (AMC) multiplied by the number of years of service. This amount is then reduced by 25% of the employee's vested dual benefit as computed before any adjustment (see item 12). The AMC is the average of an individual's highest 60 months of railroad earnings up to the tier 2 maximum. For each month of service in a year for which the Railroad Retirement Board's records do not show earnings on a monthly basis, the total earnings for the year divided by the months of service in that year will be considered the monthly earnings for each month of service in the year.
12. Vested dual benefit computation
A. For employees satisfying requirements in item 6.A., benefit is social security benefit based on railroad earnings through 1974, plus social security benefit based on social security earnings through 1974, less social security benefit based on combined railroad and social security earnings through 1974.
B. For employees satisfying requirements of item 6.B., benefit is the same as in A., except for the exclusion of all earnings after last pre-1975 year employee had railroad employment.
In both cases, benefit might be proportionally reduced so that the total amount paid out in vested dual benefits in any fiscal year does not exceed the total amount appropriated for that year (see item 42).
13. Supplemental annuity computation
For employees retired before 1975, the monthly benefit is a minimum of $45 increased by $5 for each year of service over 25, with a maximum benefit of $70. These employees have a reduction in their regular railroad retirement annuity because of the supplemental annuity. For employees whose supplemental annuity begins after 1974, the monthly benefit is a minimum of $23 increased by $4 for each year of service over 25, with a maximum benefit of $43. These employees have no reduction in their regular railroad retirement annuity. Supplemental annuity will be reduced if employee receives a private pension from railroad employer based on employer contributions.
14. Cost-of-living increases (annually, effective with January 1 payments)
Tier 1: Same as social security increases.
Tier 2: 32.5% of social security increases.
Vested dual benefits: Frozen at the 1974 level, except that social security cost-of-living increases effective between 12-31-74 and the earlier of January 1, 1982 and the annuity beginning date are included in the benefit computation.
Supplemental annuity: None.
15. Tax rebate lump sum
Employee who has at least 10 years of railroad service and is not eligible for the vested dual benefit will receive a lump sum at retirement computed by summing for each year from 1951 through 1974 the product of the social security tax rate for the year times the excess of the employee’s combined railroad and social security earnings for the year over (approximately) the maximum creditable for the year under the 1937 Act. Survivors of employee may receive refund if employee dies before receiving it.
16. Separation/severance lump sum
Lump sum, equal to tier 2 payroll taxes deducted from separation or severance payments, will be paid at retirement to employees with 10 or more years of service if separation or severance payments did not yield additional service month credits.
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SPOUSE BENEFITS
17. Eligibility
A. Unreduced annuity:
1. Spouse retiring at age 60 (or any age with a child in care), if employee attained 60/30 eligibility before 7-1-84 and retired at age 60 or later, or if employee attained 60/30 eligibility after 6-30-84 and retired at age 62 or later.
2. Spouse retiring (a) at age 65 if born before 1938, (b) social security normal retirement age if born after 1937, or (c) any age with a child in care, if employee retired after 12-31-74 and is age 62 or over, employee retired before 1-1-75 and is age 65 or over, or employee attained 60/30 eligibility after 6-30-84 and retired from disability after 6-30-84.
B. Reduced annuity:
1. Spouse retiring at age 60 if employee attained 60/30 eligibility after 6-30-84 and retired after 6-30-84 before attaining age 62. If employee and spouse have not both attained age 62, spouse tier 1 is one-half the tier 1 the employee received before attaining age 62. If employee and spouse have both attained age 62, spouse tier 1 is equal to a social security spouse benefit after applying an age reduction based on the spouse's age at the tir . ooth employee and spouse became age 62; in this case, if employee attained 60/30 eligibility between 7-1-84 and 12-31-85, spouse age reduction is one-half the amount otherwise applicable.
2. Spouse retiring at age 60, if employee attained 60/30 eligibility after 6-30-84 and retired from disability after 6-30-84. If spouse was born before 1938, age reduction in tier 1 is 1/144 for each month spouse is under 65. If spouse was born after 1937, age reduction in tier 1 is 1/144 for each of first 36 months and 1/240 for each additional month spouse is under social security retirement age; spouses retiring at 60-61 are deemed 62.
3. Spouse retiring at age 62, if employee has less than 30 years of service, is retired, and has attained age 62. If spouse was born before 1938, age reduction is 1/144 for each month spouse is under 65. If spouse was born after 1937, age reduction is 1/144 for each of the first 36 months spouse is under social security retirement age and 1/240 for each month in excess of 36 that spouse is under retirement age. (Reduction for age in excess of 36 months applies only to tier 1 if employee had any service before 8-12-83.)
18. Work restrictions
Same as employee; in addition, spouse is not paid for any month employee annuity is not payable by virtue of work restrictions.
19. Annuity formula
Tier 1 - social security component
One-half of social security benefit based on employee's combined railroad and social security earnings. See item 17 for computation of spouse tier 1 in cases where employee is receiving a reduced 60/30 benefit. If spouse is entitled to a social security benefit, tier 1 is reduced by the amount of the benefit, but not below 0. If spouse is entitled to employee annuity or a public service pension, certain additional restrictions apply.
Tier 2 - railroad industry component
45% of employee's tier 2 benefit. Spouse receives additional benefit if spouse is also an employee.
20. Vested dual benefit
A spouse receiving a vested dual benefit on August 13, 1981 will continue to receive a benefit (adjusted as described in item 12). No vested dual benefits will be awarded after that date.
21. Divorced wife
Entitled to a tier 1 benefit only. Employee must be age 62 and retired. Divorced wife must be age 65 (or 62 for reduced benefit), unmarried, and have been married for at least 10 years to employee.
22. Cost-of-living increases
Each tier is subject to same percentage increase as corresponding tier of employee benefit.
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MAXIMUM AND MINIMUM ANNUITIES
23. Maximum annuity (employee and spouse)
100% of final AMC" up to an amount equal to 50% of tier 1 earnings in the year in which the annuity begins, plus 80% of that part of the final AMC that exceeds 50% of tier 1 earnings. The final AMC is the average monthly combined railroad and social security earnings received by the employee during the two highest calendar years of earnings in the 10 years ending with retirement. Earnings used in computing the final AMC are subject to the tier 2 earnings maximum.
If the combined employee and spouse annuities (excluding the vested dual benefit) exceed the above amount, the spouse's tier 2 benefit is reduced first, then the employee's supplemental annuity, and finally the employee's tier 2 benefit. The tier 1 benefits are not reduced. The maximum may not reduce total family benefits (excluding the vested dual benefit) below $1,200 per month.
24. Minimum annuity
The overall minimum guaranty for employees and spouse is 100% of the amount, or the additional amount, the family would receive under the Social Security Act if the employee's railroad earnings after 1936 were credited as social security earnings.
SURVIVOR AND DEATH BENEFITS
25. Residual lump sum death benefit
Payable when it appears no further benefits will derive from deceased employee except possibly to a widow, widower or parent at a future date. In this case, survivor must waive the right to all future benefits. The amount payable is the sum of 4% of taxable railroad earnings from 1-1-37 to 12-31-46, 7% from 1-1-47 to 12-31-58, 7-1/2% from 1-1-59 to 12-31-61, 8/ from 1-1-62 to 12-31-65, and from 1-1-66 to 12-31-74, 1/2% above the employee tier 2 contribution rate. Railroad earnings after 1974 are not taken into account. The amount actually paid is reduced by the amount of benefits paid deriving from the deceased employee.
26. Employee requirement for survivor benefits
All benefits except residual lump sum require deceased employee to have 10 years of railroad service and a current connection. If employee does not meet above conditions, his earnings record is transferred to social security, which pays any survivor benefits.
27. Aged widow's and widower's eligibility
A widow or widower must be age 60 and unremarried. Those age 60-61 are deemed age 62 in computing the benefit. For those born before 1940, the benefit reduction is 19/40% for each month of age under 65 when benefits begin. For those born after 1939, the age reduction depends on the age at retirement and the social security retirement age. In this case, the monthly reduction factor is that percentage which would cause retirement at age 60 to result in a 28.5 percent reduction.
28. Disabled widow's and widower's eligibility
A widow or widower must be age 50, unremarried, and totally and permanently disabled if disability occurs within 7 years of employee’s death or within 7 years after widowed mother's or father's status terminated. Age reduction is 28.5%. Benefit may not begin earlier than the first day of the sixth month following the date disability begins.
29. Widowed mother's and father's eligibility
Unremarried former spouse of a deceased employee who is not entitled to a larger amount as aged or disabled former spouse and who at the time of filing an application has in his or her care a minor or disabled child of the deceased employee.
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30. Divorced widow's, remarried widow's, and divorced mother's eligibility
The following are eligible for a tier 1 benefit only.
A. Divorced widow - must have been married to employee at least 10 years, have attained 65-(60 for reduced benefit), and be unmarried.
B. Remarried widow - must have remarried after age 60, or the remarriage must have ended. Widow must have
attained age 60 or be between 50 and 59 and disabled.
C. Divorced mother - divorced widow who is unmarried and has in her care a child of employee under age 16 or
disabled.
Benefits for divorced widows and remarried widows are reduced for the full number of months under age 65.
31. Child's eligibility
A child of a deceased employee must be under 18 or under 19 and a full-time elementary or secondary school student. Dependent, unmarried children who were disabled before age 22 are also eligible, regardless of age.
32. Parent's eligibility
A parent of a deceased employee who has attained age 60 and received at least one-half of his or her support from the employee will be eligible for an annuity. A parent of an employee who died leaving a widow, widower or child who is or might become eligible in the future will be eligible for a tier 1 benefit only. In certain instances, a remarried parent of a deceased employee will be eligible for a tier 1 benefit.
33. Work restrictions
Annuity not payable for any month in which survivor engages in railroad employment. Entire benefit subject to social security work restrictions.
34. Annuity computation for all eligible survivors
Tier 1
Amount payable to survivor under Social Security Act, based on the deceased employee's combined railroad and social security earnings after 12-31-36, less the amount of any social security benefit received. Additional restrictions exist for a widow who also receives an annuity as a railroad employee or who receives a public service pension.
Tier 2
Widow or widower - 50% of employee tier 2 benefit
Parent - 35% of employee tier 2 benefit
Children - 15% of employee tier 2 benefit for each child
The total family tier 2 benefit has a minimum of 35% and a maximum of 80% of the employee's tier 2 benefit.
For aged widow or widower, the total benefit exclusive of any vested dual benefit may not be less than amount received as spouse in month before employee's death.
All percentages are before deductions for work or entitlement to social security benefit or railroad retirement employee annuity.
35. Vested dual benefit for widow or widower
A widow or widower receiving a vested dual benefit on August 13, 1981 will continue to receive a benefit (adjusted as described in item 12). No vested dual benefits will be awarded after that date.
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36. Insurance lump sum
Payable if employee leaves no survivor eligible for monthly benefits in the month of his death.
Amount
A. If employee had 10 years of service before 1-1-75, the benefit is 10 times the basic amount. The basic amount is 52.4% of the first $75 of average monthly renumeration (AMR), plus 12.8% of the remainder, increased by 1% for each year before 1975 with earnings of $200 or more. The AMR is combined railroad and social security earnings before 1975 divided by the number of months after 1936 or age 22 and up to retirement or death.
B. If employee had less than 10 years of service as of 12-31-74, the amount will be the amount social security would have paid (currently $255).
37. Cost-of-living increases for survivors
Each tier is subject to same percentage increase as corresponding tier of employee benefit.
FINANCING, INVESTMENTS AND TAXATION OF BENEFITS
38. Employee and employer payroll taxes
Employees and employers contribute at the prevailing social security rate of pay up to the tier 1 earnings limit. In addition, employers contribute 16.1 percent and employees contribute 4.9 percent of pay up to the tier 2 earnings limit. Contributions to 401(k) deferred compensation plans and the value of employer-paid premiums for group term life insurance coverage in excess of $50,000 are included in railroad earnings for payroll tax purposes.
39. Supplemental annuity tax
Taxes for the supplemental account are collected on the basis of the $45-$70 benefit scale previously in effect. The tax rate is determined quarterly by the Railroad Retirement Board on a cents-per-work-hour basis and is paid by employers. The excess resulting from the $23-$43 actual benefit scale is transferred to the regular railroad retirement account.
40. Financial interchange
Railroad retirement system pays to social security system the taxes social security would have collected and receives the additional amount of benefits and administrative expenses social security would have paid if railroad employment had been covered under social security. The net difference (including interest) is transferred in the June after the fiscal year for which the transfer is made.
The Railroad Retirement Board estimates the amount and direction of the financial interchange transfer that would be made for each month if transfers were on a current monthly basis. If this estimate favors the railroad retirement system, Treasury advances the amount with interest to the railroad retirement account, as a loan from the general fund, by the middle of the succeeding month. Within
10 days after receipt of the annual financial interchange for a fiscal year, the RRB must repay the amount, with interest, advanced during the fiscal year.
41. Investments
Railroad retirement system funds are permitted to be invested in special obligations, U.S. interest-bearing securities, and interest-bearing securities guaranteed by the U.S. or which are lawful investments for trust funds managed by the Treasury. The securities purchased in a month must have fixed maturity dates and interest yields at rates at least as high as the average market yield of all Treasury notes with maturities of over 3 years, but not less than 3%. The Railroad Retirement Board has the authority to make mandatory requests upon the Secretary of the Treasury as to purchase of these obligations. The Railroad Retirement Board determines when and which securities are to be redeemed for the purpose of paying benefits or for reinvestment.
42. Financing of vested dual benefits
General revenue appropriations finance all vested dual benefit payments since September 1981. Beginning October 1, 1981, each annual appropriation is placed in the Dual Benefits Payments Account. Total benefits paid in any fiscal year (starting with 1982) may not exceed the total available in the account. The account may borrow at the end of a fiscal year the amount that the Railroad Retirement Board estimates will be necessary to pay vested dual benefits for the first month of the next fiscal year.
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43. Railroad unemployment repayment tax
The purpose of this additional tax paid by employers is to repay to the railroad retirement account the outstanding loan to the railroad unemployment insurance account. Effective January 1, 1989, the tax rate was fixed at 4 percent of the first $710 (indexed) of each employee's monthly earnings. The monthly earnings limit changed to $745 for 1990 and $765 for 1991. The Treasury transfers from the general fund to the railroad retirement account the revenue produced by this tax. The tax will continue at the 4 percent rate until the loan is fully repaid with interest.
44. Taxability of benefits
The portion of tier 1 benefits equivalent to social security benefits is taxed under the same rules as are social security benefits. Tier 1 benefits in excess of social security equivalent benefits, tier 2 benefits, vested dual benefits, and supplemental annuities are taxed under the rules by which private pensions are taxed.
Revenues from taxes on social security equivalent benefits are transferred to the social security system through the financial interchange. The revenue derived from taxing pre-October 1992 excess tier 1 benefits and tier 2 benefits will be transferred to the railroad retirement account. The revenue derived from taxing pre-October 1988 vested dual benefits was also transferred to the railroad retirement account; revenue from taxing vested dual benefits paid after September 1988 is being transferred to the Dual Benefits Payments Account.
MISCELLANEOUS PROVISIONS
45. Benefit preservation
Each year the Railroad Retirement Board must report to the President and Congress the results of a five-year projection of anticipated revenues to and payments from the railroad retirement account. If the results show that the funds in the account will be insufficient to pay full benefits at any time during the five-year period, the report must indicate (1) the first fiscal year in which benefits would have to be reduced because of insufficient funds in the absence of any changes, and (2) the amount of adjustments necessary to preserve financial solvency. Within 180 days after publication of this report, representatives of railroad labor and management are obligated to submit proposals designed to preserve the fund's solvency. The Railroad Retirement Board will publish regulations necessary to provide a constant level of benefits at the maximum level possible and to insure that no individual receives less than what he would have had all his earnings been covered under social security. The Railroad Retirement Board's regulations will take effect beginning with the first year in which benefit reductions will be necessary and continue until legislative action supersedes them.
46. Automatic benefit eligibility adjustments
Liberalizations in social security eligibility requirements will automatically be reflected in railroad retirement eligibility requirements, but reductions in social security requirements for categories not entitled to railroad retirement annuities under the 1937 act will not confer railroad retirement eligibility. If the Social Security Act is amended to provide benefits to a class not previously entitled under social security, the new class will also be provided railroad retirement benefits. The amount will be the social security benefit based on the employee's combined railroad and social security earnings.
47. Transfer of credits
Transfer of railroad retirement credits is made to social security if an employee had less than 10 years of railroad service or, in the case of a survivor, if the employee lacked a current connection.
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DEFINITIONS
The meanings of terms used in the outline are defined below:
Railroad earnings - earnings derived from covered railroad employment, up to the maximums specified in item 9.
Social security earnings - earnings derived from employment covered under the Social Security Act (excludes railroad earnings), up to the maximums allowed.
Current connection - generally defined as having at least 12 months of railroad service in the 30 months preceding death or retirement. For purposes of the supplemental annuity or survivors' benefits, an employee who was terminated involuntarily and without fault after 25 years of service is deemed to have a current connection if he worked in the railroad industry on or after October 1, 1975.
Fully insured - insured for retirement at age 62 under social security; does not necessarily imply an insured status for disability benefits or for survivor benefits for death before age 62.
Social security benefit - when used in describing the computation of the vested dual benefit, the term "social security benefit" means a primary insurance amount computed by using the social security formula in effect in 1974 and the specified earnings; it does not imply an actual benefit.
Social security retirement age - the age at which an individual may receive an unreduced benefit at retirement under the Social Security Act, as follows:
Year of attainment of early retirement age (62 for employees and spouses, Retirement age
60 for widows and widowers) (age for unreduced benefit)
1999 or earlier 65 years, 0 months
2000 65 years, 2 months
2001 65 years, 4 months
2002 65 years, 6 months
2003 65 years, 8 months
2004 65 years, 10 months
2005-2016 66 years, 0 months
2017 66 years, 2 months
2018 66 years, 4 months
2019 66 years, 6 months
2020 66 years, 8 months
2021 66 years, 10 months
2022 or later 67 years, 0 months
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RUIA Financing Report
UNITED STATES OF AMERICA Railroad Retirement Board 844 RUSH STREET CHICAGO, ILLINOIS 60611
BOARD MEMBERS:
Glen L. Bower (Chairman)
C.J. Chamberlain (Labor)
Andrew F. Reardon (Management)
June 28, 1991
Honorable Dan Quayle President of the Senate Washington, D.C. 20510
Dear Mr. President:
As required by Section 7105 of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-647), the Board hereby submits the 1991 annual report on the financial status of the railroad unemployment insurance system.
This report is based on the provisions of current law, which provide for a transition to experience-based employer contributions beginning in 1991, and projections that utilize variables consistent with actuarial projections for the railroad retirement system. Highlights of the report are:
— Experience-based contribution rates keep the system solvent, even under the most pessimistic assumptions.
- Maximum benefit rates increase 42 percent (from $31 to $44) from 1990 to 2000.
— Average employer contribution rates drop significantly through the 1991-93 transition period.
— Existing loans from the Railroad Retirement Account will be fully repaid by the end of calendar year 1994.
- No new loans will be required during the projection period.
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Honorable Dan Quayle
Accordingly, the Board recommends no changes to the system at this time.
Enclosure
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UNITED STATES OF AMERICA Railroad Retirement Board 844 RUSH STREET CHICAGO, ILLINOIS 60611
BOARD MEMBERS:
Glen L. Bower (Chairman)
C.J. Chamberlain (Labor)
Andrew F. Reardon (Management)
June 28, 1991
Honorable Thomas S. Foley
Speaker of the House of Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
As required by Section 7105 of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-647), the Board hereby submits the 1991 annual report on the financial status of the railroad unemployment insurance system.
This report is based on the provisions of current law, which provide for a transition to experience-based employer contributions beginning in 1991, and projections that utilize variables consistent with actuarial projections for the railroad retirement system. Highlights of the report are:
- Experience-based contribution rates keep the system solvent, even under the most pessimistic assumptions.
- Maximum benefit rates increase 42 percent (from $31 to $44) from 1990 to 2000.
— Average employer contribution rates drop significantly through the 1991-93 transition period.
— Existing loans from the Railroad Retirement Account will be fully repaid by the end of calendar year 1994.
— No new loans will be required during the projection period.
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Honorable Thomas S. Foley
Accordingly, the Board recommends no changes to the system at this time.
Enclosure
C. J. Chamberlain
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Annual Report Required by the Technical and Miscellaneous Revenue Act of 1988
I.. Introduction
Section 7105 of the Technical and Miscellaneous Revenue Act of 1988 requires the Railroad Retirement Board to submit an annual report to the Congress on the financial status of the railroad unemployment insurance system. The report must contain recommendations for financing changes which might be advisable, specifically with regard to rates of employer contributions. This report meets the requirements of Section 7105 for 1991.
II. Recent Developments
Following passage of the Railroad Unemployment Insurance and Retirement Improvement Act of 1988, the maximum daily benefit applicable to unemployment and sickness payments beginning on or after July 1, 1988 increased to $30, and then to $31 beginning July 1, 1989. It will remain at that level at least through June 30, 1992. The monthly tax base increased from $600 to $710 in calendar year 1989, to $745 in 1990, and to $765 in 1991, based on increases in the tier I tax base. Employer experience has been captured since January 1, 1990, and the first experience-based employer tax rates were calculated for 1991.
III. Economic and Employment Assumptions
The economic and employment assumptions used in this report correspond to those used in the report required by Section 502 of the Railroad Retirement Solvency Act of 1983. As with the railroad retirement system, employment levels are the single most significant factor affecting the financial status of the railroad unemployment insurance system. Rapidly declining employment coupled with high unemployment levels, as occurred in the early 1980's, can put the system into debt. Conversely, significant cash balances can accumulate if employment declines are moderate and unemployment levels remain low.
The four employment assumptions used, denoted A, B, C and D, are shown in Table 1 at the end of the report. The projected tier I taxable limits, which determine both the railroad unemployment monthly wage base and the maximum daily benefit rate, are from the Social Security Administration's 1991 Trustees Report, alternative II set of assumptions. Table 2 shows the tier I taxable limit, unemployment monthly earnings base and daily benefit rate assumptions.
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TV. Results
Projections were made for the various components of income and outgo under each employment assumption for the 10 fiscal years 1991-2000. In addition, projections were made of the pre-October 1985 loan balance. It was assumed that in the future only repayment taxes would be used to reduce the loan balance; Railroad Unemployment Insurance Account funds were not allocated for this purpose. The results are summarized in Table 3. Average employer contribution rates under the experience-rated contribution system are the result of a program developed by the firm Tillinghast, a Towers Perrin Company.
Table 3 consists of four tables, one for each employment projection A, B, C and D. The tables show (1) contributions, excluding the portion allocated to the Administration Fund, (2) benefit payments, (3) other income and outgo, (4) the cash balance in the Account at the end of each fiscal year, (5) repayment taxes applied against the pre-October 1985 loan balance, (6) the pre-October 1985 loan balance at the end of each fiscal year, and (7) the average employer contribution rate for each calendar year. Exhibit I is a graph of the composite average employer contribution rates for the four assumptions.
In all cases, no new loans are needed to finance benefit payments during the projection period. The experience-based contribution rates generate sufficient funds to respond to the different levels and patterns of employment decline assumed.
The experience-rating formula is designed to keep the accrual balance of the Account, as of June 30, between $100 million and $250 million, indexed for changes in the taxable base. During calendar year 1990, the last year employers paid the flat 8.00 percent contribution rate, the balance in the Account increased. As a result, the balance1 in the Account, under all four assumptions, is projected to be above $250 million at the end of June 1991. This results in a system pooled credit ranging from 2.30 to 2.77 percent, depending on the employment assumption, applied to each employer’s 1992 rate. The 1992 average employer contribution rate declines to approximately 3.41 percent, slightly above the 3.10 percent minimum rate for the second transition year of experience-based contributions.
1 The balance referred to here and in the following paragraph is the accrual balance of the Account as of June 30, on which calculations of pooled credits and surcharges are based. Cash balances shown on Tables 3A-D are not used in these calculations.
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Once the transition to experience-based contributions is complete, an employer's rate can go as low as 0.65 percent, and, under all assumptions, the average rate falls below 1.20 percent for 1993, with the Account balance remaining above $250 million. Beyond that point the balances decline, falling below $250 million in 1994 or 1995. As the balances fall, the rates begin to climb, reflecting each employer's actual experience. The highest rate needed is under employment assumption D, where it goes to 5.6 percent in 1998. This is well below the 12 percent maximum rate allowable. Throughout the projection period, there is no likelihood of a surcharge.
The 0.65 percent of taxable payroll allocated to the Administration Fund is sufficient to finance the current level of administrative expenses under employment assumptions A, B and C. Since the balance in the Fund was above $6 million at the end of fiscal year 1990, there was a transfer of excess funds to the Account. A transfer of excess funds is projected to occur each year thereafter under assumptions A and B, and through fiscal year 1995 under employment assumption C. Under employment assumption D, there is a transfer of excess funds through fiscal year 1993. The balance in the Administrative Fund declines rapidly after that, and the Account must transfer monies to the Fund to cover shortages in fiscal years 1996 through 2000.
When the Railroad Retirement Solvency Act of 1983 established the Railroad Unemployment Compensation Committee to review all aspects of the Railroad Unemployment Insurance Act, the Congress directed that any recommendations include repayment of all loans by December 31, 2000. The current legislation is projected to meet that deadline for all pre-October 1985 loans and associated interest. Under all four assumptions, the loan is projected to be repaid by the end of calendar year 1994.
V. Recommendations
As stated in the introduction, the Congress directed the Board to make recommendations for financing changes which might be advisable, specifically with regard to rates of employer contributions.
No financing changes are recommended at this time. The transition to experience-based contribution rates began in calendar year 1991 and will be completed in calendar year 1993. Collection of actual experience for the calculation of employer contribution rates began on January 1, 1990. Projections under four different employment assumptions indicate that experience-based contribution rates will react as intended to respond to fluctuating employment and unemployment levels. In addition, the preOctober 1985 loans from the Railroad Retirement Account should be repaid in their entirety by the end of calendar year 1994.
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Table 1: Employment Assumptions Used in 1991 Report
Calendar Year Average Employment (thousands) D
A B C
1990 296 296 296 296
1991 285 282 280 275
1992 275 271 266 257
1993 265 262 255 242
1994 256 253 245 228
1995 248 245 '235 215
1996 244 237 226 202
1997 241 230 217 191
1998 238 226 212 183
1999 235 223 207 175
2000 231 219 202 168
Employment assumption A is based on a projection model used by the Commission on Railroad Retirement Reform. This model recognizes differences in activities among Class 1, regional and passenger railroads, and it relates employment to those activities. It is the most optimistic of the four employment assumptions. Employment assumptions B and C are based on (1) the stability of employment in passenger service (Amtrak and commuter service) as distinguished from freight service, and (2) surveys of employment projections of Class 1 railroads (the larger freight railroads) developed by the Association of American Railroads. Employment assumptions B and C are intended to provide a range of moderate assumptions. Employment assumption D follows the structure of assumptions B and C, except it has declines in passenger employment and deeper declines in freight employment than employment assumptions B and C. It is intended to be a pessimistic assumption.
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Table 2: Annual Tier I Taxable Limit, Monthly RUI Taxable Limit, and Maximum Daily Benefit Rate
Calendar Year Annual Tier I Limit Monthly RUI Limit Maximum Daily Benefit Rate 11]
1990 $51,300 $745 $31
1991 $53,400 $765 $31
1992 $55,800 $790 $33
1993 $57,900 $815 $33
1994 $60,900 $845 $36
1995 $64,200 $880 $36
1996 $67,500 $915 $39
1997 $71,100 $950 $39
1998 $74,700 $990 $42
1999 $78,600 $1,030 $44
2000 $82,800 $1,075 $44
[1] Effective for registration periods beginning after June 30 in the calendar year.
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Table 3A. Progress of the Railroad Unemployment Insurance Account Under Assumption A (Dollar Amounts in Millions)
Average
Account Employer
Contri- Other Income Account Pre-October Contribution
Fiscal butions Benefit and Outgo Cash Repayment 1985 Loan Calendar Rate
Year [1] Payments [2] Balance Tax Balance Year (Percent)
1991 $172.1 $97.1 $25.1 $315.3 $108.1 $277.0 1991 6.38
1992 112.9 100.1 25.0 353.1 107.2 188.2 1992 3.35
1993 38.7 102.5 23.6 313.0 106.7 91.7 1993 0.85
1994 11.5 100.6 29.4 253.3 94.4 0.0 1994 1.31
1995 45.3 103.5 32.6 227.6 0.0 0.0 1995 3.35
1996 82.8 102.3 13.3 221.5 0.0 0.0 1996 4.01
1997 98.3 105.8 13.6 227.6 0.0 0.0 1997 4.32
1998 108.5 104.4 14.8 246.4 0.0 0.0 1998 4.54
1999 109.7 110.6 16.6 262.1 0.0 0.0 1999 4.20
2000 101.9 113.7 17.9 268.2 0.0 0.0 2000 3.84
[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.
[2] Income includes interest on investments, transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year and, in fiscal years 1994 and 1995, repayment taxes received after full repayment of the pre-October 1985 loans. Outgo includes funding for the Office of Inspector General.
133
134
Table 3B. Progress of the Railroad Unemployment Insurance Account Under Assumption B
(Dollar Amounts in Millions)
Average
Account Employer
Contri- Other Income Account Pre-October Contribution
Fiscal butions Benefit and Outgo Cash Repayment 1985 Loan Calendar Rate
Year I11 Payments [2] Balance Tax Balance Year (Percent)
1991 $171.3 $101.0 $24.9 $310.4 $107.5 $277.5 1991 6.38
1992 112.1 102.9 24.2 343.8 105.9 190.3 1992 3.39
1993 39.7 106.6 22.6 299.6 105.3 95.7 1993 0^93
1994 15.6 103.7 22.8 234.3 98.7 0.0 1994 1.55
1995 53.3 108.0 31.0 210.5 0.0 0.0 1995 3.75
1996 92.8 105.8 12.3 209.9 0.0 0.0 1996 4^49
1997 106.3 109.7 12.5 219.0 0.0 0.0 1997 4 71
1998 112.9 103.2 13.7 242.3 0.0 0.0 1998 4^85
1999 109.2 108.1 15.5 258.9 0.0 0.0 1999 4^26
2000 97.1 110.7 16.5 261.8 0.0 0.0 2000 3.81
[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.
[2] Income includes interest on investments, transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year and, in fiscal years 1994 and 1995, repayment taxes received after full repayment of the pre-October 1985 loans. Outgo includes funding for the Office of Inspector General.
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Table 3C. Progress of the Railroad Unemployment Insurance Account Under Assumption C
(Dollar Amounts in Millions)
Average
Account Employer
Contri- * Other Income Account Pre-October Contribution
Fiscal butions Benefit and Outgo Cash Repayment 1985 Loan Calendar Rate
Year U) Payments [2] Balance Tax Balance Year (Percent)
1991 $170.8 $103.1 $24.8 $307.7 $107.1 $278.0 1991 6.38
1992 111.3 107.2 23.7 335.5 104.6 192.0 1992 3.42
1993 40.6 110.0 21.6 287.8 103.0 99.8 1993 1.03
1994 19.8 106.8 15.0 215.8 102.1 1.0 1994 1.82
1995 59.8 109.2 46.0 212.3 1.0 0.0 1995 4.15
1996 95.0 106.0 11.9 213.2 0.0 0.Q 1996 4.58
1997 102.4 109.7 12.1 218.0 0.0 0.0 1997 4.75
1998 108.6 103.2 12.9 236.3 0.0 0.0 1998 5.00
1999 108.8 106.7 14.1 252.5 0.0 0.0 1999 4.63
2000 99.0 108.1 14.8 258.1 0.0 0.0 2000 4.13
[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.
[2] Income includes interest on investments, transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year and, in fiscal year 1995, repayment taxes received after full repayment of the pre-October 1985 loans. Outgo includes funding for the Office of Inspector General.
Table 3D. Progress of the Railroad Unemployment Insurance Account Under Assumption D
(Dollar Amounts in Millions)
Average
Account Employer
Contri- Other Income Account Pre-October Contribution
Fiscal butions Benefit and Outgo Cash Repayment 1985 Loan Calendar Rate
Year [1] Payments [2] Balance Tax Balance Year (Percent)
1991 $169.4 $108.1 24.5 $301.0 $106.2 $278.7 1991 6.38
1992 109.6 110.2 22.8 323.2 101.9 195.8 1992 3.49
1993 42.0 111.9 20.2 273.6 98.6 108.5 1993 1.19
1994 25.0 1 09.3 1 3.4 202.7 96.0 1 6.5 1 994 2.20
1995 64.6 110.3 33.2 190.2 17.0 0.0 1995 4.59
1996 99.9 104.6 10.1 195.6 0.0 0.0 1996 5.36
1997 108.8 105.7 9.0 207.7 0.0 0.0 1997 5.56
1998 110.4 96.7 10.1 231.4 0.0 0.0 1998 5.60
1999 103.5 98.3 11.3 247.9 0.0 0.0 1999 4.97
2000 90.2 97.8 11.9 252.2 0.0 0.0 2000 4.43
[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.
[2] Income includes interest on investments, transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year and, in fiscal year 1995, repayment taxes received after full repayment of the pre-October 1985 loans. Outgo includes funding for the Office of Inspector General
and transfers to the Administrative Fund to cover shortages.
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Exhibit I
Average Employer Contribution Rates
Average of Assumptions A Through P
YEARS
137
HD 7116 ,R12
U4 1990
U005 24971 100 6