ployer's contribution by $40 to $10, and he is paid $60 as a supplemental pension; his supplemental annuity (based on his 30 or more years of service) would be reduced by only $10 or from $70 to $60 since he is being paid only $10 as a pension based on the employer's contribution; hence he would receive $60 as a pension and $60 as a supplemental annuity, a total of $120. However, if the entire $100 pension is attributable to the employer's contribution and such pension is reduced by $40 to $60 by reason of the individual's entitlement to a supplemental annuity, the proviso in paragraph (2) would apply. In such a case the supplemental annuity would be reduced by $70-$40, or by $30 to $40. The individual would then receive $60 as a pension and $40 as a supplemental annuity, or a total of $100.

The amount of the reduction from the supplemental annuity by reason of the individual's entitlement to a supplemental pension of an employer would in all cases be determined by the Railroad Retirement Board on the basis of the contributions made by such employer to such supplemental pension plan at all times during which contributions to such plan were made either by such employer or such employer's predecessor. Any such employer or predecessor will not be deemed to have contributed toward an increase in the pension of such employer's (or its predecessor's) pension plan if such increase was offset by a decrease in wages.

(The employer (other than a railway-labor-organization employer whose employees will have no reductions in their supplemental annuities by reason of their entitlement to supplemental pensions from such employers) would receive as a credit against the tax imposed for the supplemental annuity program an amount equal in the aggregate to such monthly reductions. If the credit exceeds the tax liability for a month, the excess credit could be carried forward to future months but the total of the credits could never exceed the tax liability (see explanation as to this of sec. 301 (e) of the bill).)

For the purpose of all requirements as to the reduction of a supplemental annuity by reason of the individual's enetitlement to a supplemental pension under an employer's plan, the Board would have full access to all records and documents of the employer relating to such pension plan.

Paragraph (3) of the new subsection (j) of section 3 of the Railroad Retirement Act would require the termination of supplemental annuities with such annuities accruing for the 60th month following enactment of the subsection.

Paragraph (4) of the new subsection (j) of section 3 of the Railroad Retirement Act provides that section 12 of the act will not operate to exclude supplemental annuities from income which is taxable pursuant to the Federal income tax provisions of the Internal Revenue Code of 1954.

Section 2. Subsection (a) of this section of the bill provides for the establishment of a new account in the Treasury of the United States to be known as the railroad retirement supplemental account through the addition of a new subsection to be designated as subsection "(b)" of section 15 of the Railroad Retirement Act of 1937. An amount equal to the taxes imposed by the bill on employers of 2 cents for each man-hour with respect to which compensation is paid would be automatically appropriated to the account for each year. The funds of the

S. Rept. 1718, 89-2- -2

account would be available for the payment of supplemental annuities and administrative expenses required by the Board for the administration of the supplemental annuity program. The amount required for the administrative expenses would have to be appropriated to the Board from the account for each year.

The Board would be required at the end of 48 months following the enactment of the bill to survey the progress of the account and make a determination as to whether the balance in the account and the anticipated income for the remaining 12 months would be sufficient to pay the annuities for such 12-month period. In the event that the determination is that such balance plus anticipated income is insufficient, the amount of the supplemental annuities for the succeeding 12 months would be adjusted by the Board proportionately.

Subsection (b) provides that the present subsections “(b)”, “(e)”, and "(d)" of section 15 of the Railroad Retirement Act be redesignated as "(c)", "(d)”, and “(e)", respectively. The funds in the account which are not currently needed for the payment of supplemental annuities would be invested in the same way and under the same conditions as funds in the railroad retirement account. The provisions such as those for actuarial review applicable to the railroad retirement account would also be applicable to the supplemental account.

Section 3. Subsection (a) of this section of the bill would provide for the payment of supplemental annuities only to individuals whose annuities under section 2 of the Railroad Retirement Act are first awarded on or after July 1, 1966, but payments would first be made for the month after the month in which the bill is enacted. The reference to a first award would prevent an individual whose annuity was awarded before July of 1966 from withdrawing his application for an annuity in order to obtain another award and thus qualify for a supplemental annuity. There is an exception in a case where a disability annuity was awarded before July 1966 and was terminated before such date upon the recovery of the individual. In such a case the award of a later annuity after June 1966 would be deemed to be the first award provided the individual had before July 1966 returned to the service of an employer after his earlier annuity had terminated, and he had a current connection with the railroad industry at the time the later annuity began to accrue. For this purpose he must have a current connection without regard to his entitlement to the earlier annuity.

Subsection (b) of this section would authorize the Board to borrow such funds from the railroad retirement account as the Board estimates would be necessary for the payment of supplemental annuities for the 6 months next following the enactment of the bill and for administrative expenses necessary for the administration of the program until such time as an appropriation for such expenses is made under section 15 (b) of the Railroad Retirement Act as amended by this bill. The administrative expenses for this period are expressly authorized. The amounts borrowed pursuant to this authority would have to be repaid before the expiration of 1 year following the enactment of the bill. These amounts would bear interest at a rate approximately equal to the average rate borne by all special obligations held by the railroad retirement account on the last day of the fiscal year ending June 30,

TITLE II

Section 201. Paragraph (1) of subsection (a) of this section would provide for the computation of a spouse's annuity without regard to the adjustment of the 7-percent increase in the employee's annuity (on which such spouse's annuity is based) by virtue of the employee's entitlement to social security benefits; and without regard to the adjustment or loss of the 7-percent increase in the employee's annuity because of his entitlement to a supplemental annuity.

Paragraph (2) of this subsection would require an adjustment in a spouse's annuity, as increased by the bill, by an amount generally equal to the increase in any social security benefits to which she is entitled, derived from an average monthly wage of $400 or less, by reason of the Social Security Amendments of 1965. The adjustment would, in no case, cause a spouse's annuity to be lower than it would have been without the enactment of the bill.

Subsection (b) of this section would amend section 3 (a) of the Railroad Retirement Act to increase by 7 percent the factors in the formula for calculating an annuity. The increase in such factors would be limited to the factors applicable to an average monthly compensation of $450 a month or less. The factor applicable to average monthly compensation in excess of $450 would be the same as that now applied to the portion of the average monthly compensation over $150. There are now three percentage factors in the formula for calculating regular annuity amounts. The factors applicable to average compensation under $150 would be increased by 7 percent. The factor now applicable to average monthly compensation over $150 would also be increased by 7 percent as to average monthly compensation over $150 and up to $450. The same factor now applicable to the highest portion of the maximum average monthly compensation would apply to over $450 and up to an amount equal to one-twelfth of the current maximum annual taxable wages as defined in section 3121 of the Internal Revenue Code of 1954. (This section provides for the maximum annual taxable wage base for social security tax purposes to be $6,600. This results in the maximum monthly taxable compensation base under the Railroad Retirement Tax Act now being $550 (one-twelfth of $6,600). The maximum creditable monthly compensation was, of course, increased by legislation enacted in 1965 from $450 to $550 by virtue of the provision fixing the maximum monthly creditable and taxable compensation base in effect at an amount equal to one-twelfth of the current annual taxable wage base for social security purposes.) Thus, this last factor would become the fourth factor. This conforms to the pattern for increasing benefit amounts by 7 percent under the Social Security Act in 1965, which increases were limited to benefits produced by the maximum average monthly wage possible before the 1965 changes ($400).

Many individuals who receive annuities under the Railroad Retirement Act also draw social security benefits. The 7-percent increase in annuities this bill would provide would be reduced in such cases, generally, by the amount of the increase in the individual's social security benefits effected through the 1965 legislation. The amount of the increase in social security benefits effected by the 1965 legislation to be taken into account in this respect would be limited to the increase in

social security benefits derived from an average monthly wage of $400 or less. The social security wage base was increased from $4,800 a year to $6,600 a year by the 1965 legislation. This permits in the future an average monthly wage of up to $550 as compared with a maximum of $400 under the law before the 1965 amendments. As a consequence, an average monthly wage of over $400 and up to $550 can be the basis for the determination of benefit amounts in the future. The social security primary insurance amounts on the basis of an average monthly wage of up to $400 were increased in 1965, generally, by 7 percent (in the lower amounts the increase was larger), but in fixing the primary insurance amount table, the factor applicable to the highest portion of the average monthly wage before the 1965 increase was made applicable to an average monthly wage in excess of $400. The adjustment in the benefit by reason of the individual's entitlement to social security benefits would specifically not cause the annuity to be less than it would have been had this bill not been enacted.

In order to facilitate administration, the amount of the increase in social security benefits to be taken into account for the reduction requirement, would be determined by taking 6.55 percent of the social security benefits currently payable to the individual derived from an average monthly wage of $400 or less. This would never cause a reduction by more than the increases effected in social security benefits in 1965 and, based on such an average monthly wage, in some cases involving low social security benefits, would result in a reduction by a smaller amount that the amount of the increase actually effected in the social security benefits.

No increase in social security benefit amounts that may be effected by legislation enacted after the Social Security Amendments of 1965 would be taken into account in making the reduction. After a deduction is applied because of entitlement to social security benefits no recomputation of the social security benefit amount, except for correction of errors, would be taken into account. The deduction would be applied only where the individual has applied for and is entitled to receive social security benefits. The deduction would, however, apply for months with respect to which social security benefits are not payable because of work deductions.

Paragraph (2) of section 3 (a) of the Railroad Retirement Act as amended by this subsection would provide that the 7-percent increase not be applicable as to the annuity of an individual for months with respect to which he is entitled to a supplemental annuity with an exception. The exception would be that where a supplemental annuity of an individual is reduced (by reason of rights to a supplemental pension) to zero or to an amount lower than the amount of the 7-percent increase, the regular annuity would be increased to an amount which, when added to the amount of his supplemental annuity, would be as much as the regular annuity would have been had he not been entitled to the supplemental annuity.

Subsection (c) of this section amends section 3 (e) of the Railroad Retirement Act to increase by 7 percent a minimum annuity as determined under the regular railroad retirement minimum formula (as distinguished from the social security minimum provision). The increase in the annuity payable under this minimum provision would be subject to an adjustment because of the annuitant's entitlement to

social security benefits in the same way as would the increase in an annuity calculated under the regular formula provided in section 3 (a). Subsection (d) of this section amends section 5(b) of the Railroad Retirement Act to increase by 7 percent the maximum and minimum annuity totals of survivor benefits. The share of any individual in such a total amount would be reduced by reason of his concurrent entitlement to social security benefits as in the case of a reduction in a retirement annuity.

Subsection (e) of this section would amend section 5(1) (10) of the Railroad Retirement Act to increase by 7 percent the formula for determining the basic amount (used in calculating regular survivor annuity amounts and the insurance lump-sum benefit under sec. 5(f) (1) of the Railroad Retirement Act).

Subsection (f) of this section would add a new subsection (m) to section 5 of the Railroad Retirement Act to provide for the adjustment of the increase in survivor annuity amounts by reason of entitlement to social security benefits the same as the adjustment provided for retirement annuity amounts.

Subsection (g) of this section increases by 7 percent all pensions under section 6 of the Railroad Retirement Act of 1937, all joint and survivor annuities and survivor annuities deriving from joint and survivor annuities under that act awarded before the month following the month of enactment of this act, all widows' and widowers' insurance annuities which began to accrue before the second month following the month of enactment of this act and which are payable on the basis of the spouse's guarantee provision contained in subsec tions (a) and (b) of section 5 of the Railroad Retirement Act of 1937 and all annuities under the Railroad Retirement Act of 1935. Those of such widows' and widowers' annuities which are based on a spouse's annuity which was payable in the maximum amount would not be increased. The increase in widows' and widowers' annuities now on the rolls which are based on a spouse's annuity of less than $74.80 per month would not be increased above that amount. A widow's or widower's annuity now on the rolls based on a spouse's annuity payable in the maximum amount possible under the 1965 amendments to the Social Security Act cannot be above $74.80. These annuities would not be increased and consequently those annuities which are based on a spouse's annuity of less than $74.80 would not be increased above that amount. For example: A widow's annuity of $74 based on the spouse's guarantee provision would, if increased by 7 percent, exceed $74.80, but because of this restrictive provision such an annuity would be increased only to $74.80. The increase in the annuities under this subsection would be limited to the amount by which the increase otherwise applicable exceeds the amount of the raise in the social security benefits (derived from an average monthly wage of $400 or less) to which the individual is concurrently entitled effected by the Social Security Amendments of 1965. For example, a widow's annuity in the amount of $65, based on the spouse's maximum provision, would be increased by 7 percent to $69.55 (without regard to rounding), except for the fact that she is also entitled to a primary old-age benefit under the Social Security Act which was increased from $40 to $44, or by $4, by reason of the Social Security Act Amend