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Another major substantive amendment would conform the residual lump-sum benefit under section 5(f) (2) of the Railroad Retirement Act to increases in the schedule of tax rates in the Railroad Retirement Tax Act. The purpose of this lump-sum benefit which is payable after the death of an employee is to assure that in every case benefit payments will amount to at least as much as the employee paid in taxes in support of the railroad retirement system. It was designed to be in an amount approximately equal to the taxes an employee paid, plus an allowance in lieu of some interest, but minus, of course, other benefits paid. In view of the tax rates for years after 1967-8.15 percent for 1968 up to 9.35 percent for years after 1972-which have resulted from legislation enacted after the provision for this benefit, the maximum factor of 8 percent now applicable in computing this benefit will not be large enough to give full effect to the underlying purpose. With respect to the periods after 1965 the amount to be included in the residual lump sum would be equal to the taxes the employee paid-one-half of an employee representative's taxes would be deemed employee taxes-plus one-half of 1 percent of the compensation on which such taxes were payable, which would be a form of interest. For this purpose, compensation of $160 a month for creditable military service after 1965 would be deemed to be taxable. Taxes for hospital insurance benefits, as well as the hospital insurance benefits themselves, would be excluded from the computation of the residual lump-sum benefit.

Provisions

Estimated cost

Sec. 102(b)(1) of the bill provides for a spouse's annuity on the
basis of having a child in her care even though the employee has
no current connection with the railroad industry.
Sec. 103(c) (1) provides for the application of the 10-percent increase
(above the amount that would be payable as a social security
benefit if railroad service had been "employment" subject to the
Social Security Act, in cases where benefits are payable under the
social security minimum provision) before rather than after
reduction for social security benefits to which the individual is also
entitled....

Sec. 103(c) (2) provides that the social security minimum provision
would be applicable on the annuity accrual date (rather than
at the beginning of the following month) where the annuity
begins in the middle of the month...

Sec. 103(e) provides that where an annuitant has disappeared, he
would be assumed to be dead, and a widow's (instead of a spouse's)
annuity would be payable subject to an adjustment if he is found
to be alive.

Sec. 105(c) (2) would permit the payment of the deferred insurance
lump sum under sec. 5(f) (1) of the act to a widow or widower
whether or not either is entitled to an annuity on the basis of the
employee's death at the time the lump sum becomes payable...
Sec. 105(d) (1) would revise the method of computing the residual
lump sum under sec. 5(f) (2) of the act_-
Sec. 105(g) would eliminate (for purposes of the work deduction
requirement in survivor annuity cases) all earnings in months
after the month in which the annuitant's qualification for the
survivor annuity ceases..

Section 105(j) (1) would remove the provision which now disqualifies
a child for a survivor annuity if the child is adopted by his
brother or sister..

Sec. 105(j) (2) provides for the payment of survivor annuities to children age 18 to 21 inclusive if they are full-time students.....

Yearly costs on a level basis (or 10ings denoted by minus sign)

$500,000

100,000

100,000

-50, 000

200,000

4,300,000

100,000

50,000 2,400,000

Provisions

Estimated cost-Continued

Sec. 105(j) (3) provides that a widow or widower not entitled to an
annuity, as such, under the Railroad Retirement Act (because
of not "living with" the employee at the time of his death) and
not entitled to a benefit, as such, under the Social Security Act
(because the employee died insured under the Railroad Retire-
ment Act) would be deemed to have been "living with" the
employee at the time of his death and be paid an annuity, as
such, under the Railroad Retirement Act.__

Sec. 108 would permit the crediting to the Railroad Retirement
Account (rather than to the general funds of the Treasury) of
the payments made to the Board for administrative services
rendered to persons or organizations (such as insurance companies
or organizations of railroad labor or railroad management).
Total costs...

Total savings-

Net estimated costs...

Yearly costs on a level basis (or savings denoted by minus sign)

$150,000

-50,000 7,900, 000 - 100, 000

7, 800, 000

EFFECT OF THE BILL ON THE FINANCIAL CONDITION OF THE RAILROAD

RETIREMENT SYSTEM

There is now an estimated long-range deficiency in the financing of the benefits under the railroad retirement system of 0.62 percent of taxable payroll or $29.8 million a year on a level basis. Enactment of the bill would increase this deficiency by 0.16 percent of such payroll or $7.8 million a year on a level basis to 0.78 percent of such payroll or $37.6 million a year on a level basis.

JUSTIFICATION OF THE BILL

The Railroad Retirement Board, in its report on the bill, stated that "the considerations in favor of the provisions included in the bill are such as to warrant their enactment". The testimony of the Chairman of the Board and of the counsel for the Railway Labor Executives' Association during the hearings on the bill was to the same effect. The committee is of the same opinion.

While the total cost of the bill is estimated to be $7.8 million a year on a level basis, most of this cost would result from the provision for benefits to full-time students in the ages 18 to 21, inclusive ($2.4 million a year), and the provision to bring up to date the residual lump-sum benefits under the Railroad Retirement Act ($4.3 million a year). The remaining amendments would cost $1.2 million a year, but two of these amendments would save $0.1 million a year, leaving the net cost of the other amendments at $1.1 million a year on a level basis. The committee believes that the provision in the bill for benefits to fulltime students is of essential importance. The other costly provision in the bill changes the formula for computing the residual benefit. Under a congressional policy of long standing, this benefit is intended to insure that in no case will the benefits paid to an employee and his family be less in total than the amount of taxes he paid into the railroad retirement system, plus an amount in lieu of interest. The committee believes that there should be no departure from this longstanding congressional policy.

The railroad retirement system is regarded as being in a reasonably sound financial condition when it is underfinanced by only about an estimated 0.50 percent or less of taxable payroll. Even though after

enactment of the bill the deficit would be 0.78 percent which is 0.28 percent above the accepted tolerance of 0.50 percent, this is not so serious as to outweigh the considerations in favor of the bill. committee therefore concludes that the bill should be enacted.

HISTORY OF THE LEGISLATION

The

The bill H.R. 14355, was introduced on April 6, 1966, by the chairman of the House Committee on Interstate and Foreign Commerce. the companion bill, S. 3274, was introduced on April 25, 1966, by the chairman of the Subcommittee on Railroad Retirement of the Senate Committee on Labor and Public Welfare.

Hearings on the House bill were held on April 21, 1960, before the Subcommittee on Commerce and Finance of the House Interstate and Foreign Commerce Committee, and on the Senate bill, before the Subcommittee on Railroad Retirement of the Senate Committee on Labor and Public Welfare, on May 18, 1966. At both hearings, the bills were supported by the Railroad Retirement Board, railway labor, and other groups. Inserted into the Senate record was a letter from the Association of American Railroads, which stated that the association had no objection to the proposed legislation. Also during the Senate hearing, the subcommittee chairman stated that perhaps consideration should be given to an eventual amalgamation of the Railroad Retirement System and the Social Security System. The history of the system, the excellent administrative cost record of the Railroad Retirement Board (approximately half that of the Social Security System) and the variety of benefits administered were pointed out as factors which warrant the separation of the two systems.

The House Committee on Interstate and Foreign Commerce favorably reported H.R. 14355 on October 1, 1966, and the House of Representatives passed the bill, as amended, on October 3, 1966.

On August 29, 1966, the Subcommittee on Railroad Retirement, favorably reported S. 3274 with the same amendments as were adopted by the House. As so amended the Senate bill is identical with H.R. 14355, passed by the House. The committee therefore reports favorable on the bill H.R. 14355, as it was passed by the House of Representatives.

Section 101

SECTION-BY-SECTION ANALYSIS OF THE BILL

(a) Since Alaska and Hawaii are now States in the Union, this subsection would remove from section 1(e) of the Railroad Retirement Act the unnecessary specific reference to them as such.

(b) This subsection would make technical changes in section 1h) of the act with respect to the language of the provision for disregarding earnings in the service of a local lodge or division of a railway-labororganization employer of less than $3 a month.

(c) Section 3(e) of the Railroad Retirement Act of 1937 contains a provision which, in effect, guarantees that an annuity shall be no less than 110 percent of the amount, or the additional amount, which would be payable under the Social Security Act if the railroad service on which the annuity is based had been employment subject to that act. For the purposes of this provision, as well as others, the Social Security Act is defined in section 1(q) of the Railroad Retirement Act of 1937 as the Social Security Act as amended in 1965. In the past.

this section 1(q) had to be changed each time the Social Security Act was amended so as to refer to the Social Security Act as currently in effect. To avoid the necessity of changing section 1(q) of the act each time the Social Security Act is amended, the amendment made by this subsection of the bill would provide that the term "Social Security Act" shall mean the Social Security Act as amended from time to time, and thus dispense with the necessity of changing section 1(q) each time the Social Security Act is amended.

Section 102

(a) Under the amendment made by this subsection to section 2(a) of the act, an employee's disability annuity would be paid for 2 months after his recovery from disability. The provision as changed would correspond to a similar provision in the Social Security Act.

(b)(1) and (c) If an employee annuitant who is 65 years of age does not have a current connection with the railroad industry, no spouse's annuity is payable to his wife if she is under age 65 (or 62 in the case of a reduced annuity) even though she has the employee's minor or disabled child in her care. The reason for this is that her eligibility depends upon the child becoming entitled to a child's survivor annuity if the employee were then to die. However, if he were then to die without being currently connected with the railroad industry, or was not completely insured for other reasons, the child would not be entitled to an annuity, as such, under the Railroad Retirement Act, but would be entitled to a monthly benefit under the Social Security Act. The amendment made by subsection 102(b)(1) of the bill to section 2(e)(ii) of the Railroad Retirement Act would make the wife of such employee annuitant eligible for a spouse's annuity regardless of his insured status, as long as the child meets the requirements of section 5(1)(1) of the Railroad Retirement Act of 1937, other than section 5(1)(1)(ii) (B) thereof (the proposed new provision to qualify a child age 18 to 21, inclusive, while a full-time student). The amendment made by subsection (c) in section 2(g) of the act would terminate a spouse's annuity based on having a child in her care when the child attains age 18 or recovers from disability even though the child would be entitled to an annuity by reason of being a full-time student.

(b)(2) The amendment made by this paragraph would eliminate the words "from time to time" from section 2(e) of the act which would be no longer necessary by reason of the enactment of section 101(c)

of the bill.

(d) Under present law, an annuity on the basis of age is reduced by 1/180 for each month that the annuitant is under age 65 (other than in the case of a woman with 30 years of service); if the annuitant is only age 60, the annuity is reduced by one-third, and if his annuity is later computed by reason of an increase in benefits or added service, the increase is also reduced by one-third even if at the time of recomputation the annuitant is, say, 63 years old. The amendment made by this subsection would add a new subsection (j) to section 2 of the act to provide that the amount subsequently added to the annuity be reduced only on the basis of the annuitant's age at the time the amount is added. In the case described above, the increase would be adjusted by only 24/180 instead of 60/180.

Section 103

(a) The amendments made by this subsection would correct technically, in section 3(b)(1) of the act, the reference to certain dates. (b) To expedite adjudication of claims, the amendment made by this subsection in section 3(c) of the act would permit the certification for payment of an annuity based on months of service immediately preceding retirement with respect to which the employer's return of compensation had not yet been entered on the Board's records. In such case, the compensation for such months would be assumed to be the average of the compensation for months in the last period for which the employer had filed a return which had been entered on the Board's records, subject, however, to subsequent adjustment upon the employee's request if the assumption proves to have been in error. The provision, however, is discretionary and would not be used, for example, where the number of years of service is crucial to the determination of eligibility.

(c) (1) The amendment made by this paragraph in section 3(e) of the act is intended to eliminate an anomaly. The social security guaranty provision in section 3(e) of the act, in effect, assures that an annuity, or the total of annuities for a month, shall in no case be less than 110 percent of the amount, or the additional amount, which would be payable to all persons for the month if the railroad service on which the annuity or annuities is based had been employment under the Social Security Act. Consider the case of a man whose annuity under the regular railroad retirement formula would be $50 a month. He has social security employment, but not enough for an insured status under the Social Security Act. By combining the service credits under both systems he could receive $100 a month under the Social Security Act (there is no primary insurance amount under the Social Security Act of exactly $100 but the round figure is used for simplicity). In such case his annuity as calculated under the social security guaranty provision contained in section 3(e) of the Railroad Retirement Act is in the amount of $110 a month. If he subsequently acquires additional employment under the Social Security Act to entitle him to a primary insurance benefit of $48, the $100 is reduced by $48 and the employee's annuity under the Railroad Retirement Act becomes $57.20 a month ($52 plus 10 percent). The total of the two benefits is then $105.20 instead of $110 he formerly received under the Railroad Retirement Act alone. Thus, the employee's eligibility under the Social Security Act has resulted in penalizing him to the extent of $4.80 a month. The amendment made by this subsection would entitle him to $62 ($52 plus 10 percent of $100) instead of $57.20, and the total of both benefits would be $110 a month ($62 plus $48), or the same amount he received under the Railroad Retirement Act alone before he became entitled to a social security benefit. This change will also remove the anomaly under present law where the sum of a widow's annuity plus her own social security benefit can be less than would be her widow's annuity computed under the minimum guaranty if she were not eligible for the social security benefit.

(c) (2) Under present law, an annuity which begins after the first day of a month cannot be paid at the social security guaranty rate for the days of such month for which it is payable; for such days the annuity is paid under the regular railroad retirement formula. The amend

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