RAILROAD RETIREMENT BENEFITS-RETIREMENT, DISABILITY, AND SURVIVOR'S INSURANCE 1

BASIC PROGRAM INFORMATION

LEGISLATIVE OBJECTIVE. To provide a continuing source of income for retired or disabled railroad workers, and to the surviving dependents of workers who have died.

DATE ENACTED AND MAJOR CHANGES SINCE ENACTMENT.-The Railroad Retirement Act of 1934 set up the first retirement system for workers in private industry to be administered by an agency of the Federal Government. This act was declared unconstitutional in May 1935. The Railroad Retirement and Carriers' Taxing Acts of 1935 were enacted to overcome the constitutional difficulties of the 1934 act. These acts, too, were declared unconstitutional by a Federal district court. However, before the appeal of the district court ruling, railway labor and management issued a memorandum of agreement which became the basis of the Railroad Retirement Act of 1937 and the Carriers Taxing Act enacted in June of 1937.

Under the 1937 act, retirement annuities were payable at age 65 regardless of length of service and on a reduced basis at ages 60-64 after 30 years of service. In addition, full disability annuities were payable after 30 years of service regardless of age and reduced annuities were available at ages 60-64 with less than 30 years of service. Also, a retired employee could elect to receive a reduced annuity in order to provide a surviving spouse with an annuity.

Amendments enacted in 1946 provided for survivor benefits similar to those provided by the social security program. The 1951 amendments added benefits for the spouse of a retired worker and transformed the program into a social insurance program. Other amendments enacted over the years increased benefit amounts, changed tax rates and made other liberalizations in the program; and in 1966 provisions were enacted providing for a supplemental annuity program. The Railroad Retirement Act of 1974 completely revised the law so that it became in effect a two-tier system with Tier I being social security benefits based on combined railroad and non-railroad employment and Tier II a supplemental staff benefit based on railroad employment only. A grandfather clause protects the rights of people who became entitled to annuities prior to 1975 and of those with long railroad employment who could have been entitled to both a railroad and a social security benefit under the law in effect prior to

1975.

ADMINISTERING AGENCY.-The program is administered by the Federal Railroad Retirement Board through regional and district offices.

1 The following is based on a preliminary interpretation of the Railroad Retirement Act of 1974 which generally became effective Jan. 1, 1975.

FINANCING.-Railroad retirement benefits to workers, dependents, and survivors are financed by a payroll tax, general revenue funds, and transfers from social security funds. Under the payroll tax, employees pay 5.85 percent (the same rate as under social security); and employers pay 15.35 percent on earnings up to the maximum set for social security ($1,175 a month in 1975). The Railroad Retirement Act of 1974 authorizes an appropriation of $285 million annually from general revenue funds for the fiscal years 1975 through 2000, to help meet the obligations of the railroad retirement system. Under the provisions for financial interchange with the social security system, funds are transferred each year from social security trust funds which represent the net additional benefits the social security program would have paid if railroad employment had been covered by social security since 1937.

Supplemental annuities to retired workers age 60 and over with 30 years or more of service are pay-as-you-go financed by an employer tax on the number of hours worked. This tax was 7.5 cents per hour in fiscal year 1974 and is adjusted quarterly by the Railroad Retirement Board to provide sufficient income to pay the full cost of the supplemental annuity.

The railroad retirement account is reimbursed from general revenues for credit for military service.

Administrative costs in 1974 were $22,068,000, less than 1 percent of total program costs. (See also the diagram under Benefits below for additional information on financing.)

ELIGIBILITY CRITERIA

MAJOR ELIGIBILITY CONDITIONS.- -To be eligible for a railroad annuity, retired workers must have at least 10 years of railroad employment. A current connection with the railroad industry (defined as at least 12 months of railroad employment out of the 30 months preceding retirement) is required for occupational disability benefits and for a supplemental annuity. (See below.)

Retired workers are entitled to full benefits at age 65 or over or at age 60 with 30 or more years of service. Reduced benefits may be paid to workers who retire at ages 62 to 64 with less than 30 years of service. Supplemental benefits. A supplementary retirement benefit is payable at age 65 to a worker awarded a regular retirement or disability annuity after June 1966 if he/she had 25 years of service and a current connection with the railroad industry when the retirement annuity began. A worker whose annuity first begins after July 1, 1974, is eligible for a supplementary retirement benefit at age 60 with 30 years of service. The worker must discontinue railroad employment by age 65 to be eligible for the supplemental benefit.

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Disabled workers who are permanently disabled for all regular employment and who have 10 years or more of railroad service (a current connection with the industry is not required) may receive benefits at any age. Disabled workers who are permanently disabled for their regular railroad occupation, with 20 years of service and a current connection with the industry, may receive benefits under age 60, or at age 60-64 with 10 years of service. Disability is defined as a physical or mental condition which is expected to last at least 1 year. Survivors are eligible for benefits if the deceased worker had 10 years of railroad employment at the time of death and was otherwise properly insured.

PERSONS INCLUDED. In addition to retired and disabled workers, certain dependents and survivors are eligible.

Dependents. The wife of a retired beneficiary age 65 or over if she is at least 65 years old or has in her care a child (under 18 or disabled) of the beneficiary qualifies for a full spouse's benefit; a reduced benefit is payable at age 62-64. The 1974 amendments liberalized these requirements to provide that: (1) a spouse of an employee who has 30 years of service is eligible for an unreduced annuity when both she and the employee have attained age 60 (this liberalization is applicable only in cases where the employee's annuity first begins to accrue on or after July 1, 1974); and (2) a spouse of an employee who has less than 30 years of service can receive an unreduced spouse's annuity when the employee has attained age 62 and the spouse has either attained age 65 or has a child or the employee in her care, or a reduced annuity when the employee and the spouse have both attained age 62 (this liberalization is applicable only in cases where the employee's annuity first begins to accrue on or after January 1, 1975).

A dependent husband (defined as having received at least half of his support from his wife at the time of her retirement) is eligible under the same conditions.

Survivors. The following dependents are eligible for survivors benefits: A widow or dependent widower age 60 or older; a widow or dependent widower age 50-59 who becomes disabled within 7 years after the worker's death; a widow who is caring for a child who is entitled to payments; an unmarried child under 18, or under age 22 if attending school full time; an unmarried disabled child 18 or over if disabled before reaching age 22; and if there is no eligible widow, widower, or child, a dependent parent age 60 or older.

RETIREMENT TEST.-Entitlement to benefits is subject to a strict retirement test; that is, workers, spouses, or survivors are not entitled to a benefit for any month in which they are employed in the railroad industry, regardless of amount of earnings. Where the last employment was not in the railroad industry, workers and spouses also lose their right to benefits for any month in which they worked for their last

nonrailroad employers. Eligibility for a supplemental benefit is permanently lost if the beneficiary works for the railroad after his mandatory closing or retirement date.

For earnings from nonrailroad (and nonlast employer) employment, the social security level component of annuities (see Benefits below), computed on the basis of railroad earnings after 1974 and career social security earnings, payable to employees or spouses is subject to the same earnings test that is applicable to social security benefits. That is, for each $2 earned in excess of the annual earnings limitation ($2,520 in 1975) $1 in benefits is lost. Additional social security benefits provided employees and spouses by a grandfather clause of the new law are also subject to the social security earnings test. This retirement test does not apply to persons age 72 and older.

The spouse's benefits are also suspended if the primary beneficiary's benefits are withheld, but the primary beneficiary's benefits are not affected if the spouse's benefits are suspended because of employment.

Where benefits are based on disability, the benefit is not payable for any month in which the beneficiary is under age 65 and earns more than $200, but benefits withheld will be restored if the beneficiary's annual earnings are less than $2,500. If the beneficiary earns $2,500 or more in any year, he loses 1 months' annuity for each $200 he earns over $2,400, counting the last $100 or more as $200. No deduction will be made for months in which he earns $200 or less.

Survivors, except disabled widows and children, are also subject to the same earnings test as in applicable to social security benefits. In the case of such survivors, the entire benefit is subject to this earnings test. Earnings of disabled widows and widowers and disabled children over 18 are subject to special review.

CASH BENEFITS

BENEFITS

Primary determinants of amount of benefit.-Retired or disabled workers receive a regular annuity consisting of two components, Tier I-a social security level component computed under the social security benefit formula on the basis of the employee's combined railroad and nonrailroad earnings, and Tier II-a staff level component based on railroad service only. As a part of the staff level component, an eligible employee receives a supplemental annuity in addition to his regular annuity. Also, employees with "vested rights" to benefits under both the Railroad Retirement Act and the Social Security Act as of December 31, 1974, are eligible to receive an additional social security benefit amount based on employment prior to 1975. The entire benefit formula is complex and may consist of up to six components. The following table outlines the components of the annuity and indicates the sources of financing for each.

Components of an annuity computed under the provisions of the Railroad Retirement Act of 1974

1 The law provides that this portion of an individual's benefit shall not hereafter be subject to cost-ofliving increases, although tier I and tier II will be.

Spouse annuities, like employee annuities, consist of a social security component plus a staff component. Generally speaking, the amount of each component is equal to one-half of the employee's corresponding component. The spouse is also entitled to an additional social security benefit amount if she/he had "vested rights" to benefits under the Railroad Retirement Act and the Social Security Act as of December 31, 1974.

A survivor, like an employee and a spouse, is entitled to a social security level benefit on the basis of the deceased employee's combined railroad and nonrailroad earnings. The staff component of the survivor annuity would be equal to 30 percent of the social security level annuity component prior to any reduction due to receipt of a