income tax form if he has worked for more than one employer which includes nonrailroad employers (including an adjustment if one area of employment was self-employment), and (c) the additional employer tax in the case where an employee has worked for more than one railroad employer. The adjustments above are made on the basis of the experience of a 1-percent sample of railroad employees for whom the Board obtains gross earnings from the railroads and social security wage records.

To illustrate how these adjustments are determined in individual cases, the following 3 examples may be desirable:

1. Employee worked for only one railroad with annual earnings greater than those taxable under the railroad retirement program. In 1973, for which the social security annual taxable limit was $10,800 a year, this employee had actual total earnings of $11,400 a year. However, in the months of January, February and March, he earned only $800 per month but had earnings of $1,000 in every other month of the calendar year. Thus, his taxable compensation for railroad retirement purposes was only $10, 500 but the taxes credited to social security under the financial interchange will be determined on the basis of earnings of $10,800.

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2. Employee worked for one railroad employer and one nonrailroad employer in the same year. In this case, the employee worked for a railroad during 1973 and earned $6,000 and also worked for a nonrailroad employer from whom he earned $6,000. Since social security already collected the employee's taxes on $6,000, they would be credited with the employee's social security taxes on only an additional $4,800 of earnings and not on the full $6,000 he earned from a railroad. On the other hand, since social security law requires that each employer is liable for social security taxes on each employee up to the maximum of $10, 800 in the year, the amount of the employer's taxes credited to social security under the financial interchange in this case would be based on the full $6,000 which the employee earned from the railroad.

3. Employee worked for 2 railroads and no outside employers. · Under the railroad retirement program, each employer is not liable for the full amount of employer taxes as employers are under the social security program. Therefore, adjustments have to be made in cases where an employee works for more than one railroad in the same year. In this example, let's assume that an employee earns $5,000 from one railroad employer and $6,000 from another (including at least $900 each month in total) for a combined total of $11,000. Employee and employer railroad retirement taxes would have been collected by the Railroad Retirement Board on only $10, 800 and these would be pro-rated between the employers. Under the financial interchange,

however, social security would be credited with employer taxes on $11,000 and employee taxes on only $10,800.

Benefit payments

The amounts of railroad retirement annuities do not enter into the financial interchange computations. Basically, a social security benefit is computed from the employee's earnings record on the basis of combined railroad and social security employment. From this is subtracted the amount of any social security benefit actually being paid by social security on the basis of nonrailroad employment. The social security earnings tests are applied against these in order to determine the amount to be credited to the railroad retirement program under the financial interchange.

Because of the volume of cases involved, the financial interchange computations are made only for a 1-percent sample of beneficiaries on the Board's benefit rolls in the given year and the results are then inflated. This sample includes all categories of beneficiaries and the computation methodology is generally the same for all. The gross earnings of the employees on whose earnings the benefits are based are available in most cases for each year in the past so that the financial interchange benefits are based on earnings subject to an annual earnings base (as would be the case in actual social security computations) rather than a monthly base. The earnings from railroad retirement and social security for the individuals in this 1percent sample are obtained each year in order to determine if the benefit amounts need to be recomputed.

The individuals for whom the benefit computations in a particular year are made are generally not the same individuals for whom the tax computations are made in that year. The benefit computations are for people who are on the benefit rolls in the year under consideration and the tax computations are for those individuals working in the industry in the same year. Of course, tax payments with respect to the people on the benefit rolls were paid in earlier years while these individuals were working.

Technical problems arise in the benefit computations because the eligibility conditions under the Social Security Act are not always the same as those under the Railroad Retirement Act and the financial interchange, by definition, operates under the social security eligibility conditions. The most important such area relates to wives and children of living retired employees. Social security would pay benefits to these women and children in cases where railroad retirement does not pay any (wives whose husbands are under age 65 and all minor, disabled or student children). Benefit credit is given to

the railroad retirement program under the financial interchange on the basis of probability factors determined from social security's actual experience.

There are other areas where the eligibility conditions differ. In these areas, efforts have been made to determine the most appropriate way of approximating what the experience would have been if railroad employment had been covered by social security. All such methods have been discussed and agreed upon by representatives of railroad retirement and social security. To illustrate how detailed the discussions become, consideration is given to the effect of the "relinquishment of rights" provision in the Railroad Retirement Act on deferring retirement where the employee's earnings were sufficiently low so that they would not have wiped out all social security benefits under that program's earnings test.

The following 3 examples illustrate how the benefit computations are made in the case of retired employees:

1. A railroad employee who has had no service under social security retires. If his railroad service had been under social security, his social security annuity would have been $180 per month. His railroad retirement annuity is $375 per month. The railroad retirement system is credited with $180 per month with respect to this employee.

2. A railroad employee retires after having had sufficient service and earnings under social security to qualify for a social security annuity of $210 per month, and simultaneous service and earnings under railroad retirement to qualify for a railroad retirement annuity of $380 per month. If his railroad service had been under social security, he would have qualified for a social security annuity of $210 per month based on combined railroad and nonrailroad employment. Inasmuch as social security is already obligated to pay him an annuity of $210 per month, his employment under railroad retirement has not added anything to the amount which social security would have been obligated to pay him if such employment had been under social security. Accordingly, no credit is given the railroad retirement system with respect to this employee.

3. A railroad employee retires after having had sufficient service and earnings under social security to qualify for a social security annuity of $150 per month. Simultaneously he had sufficient service and earnings under railroad retirement to qualify for a railroad retirement annuity of $380 per month. If his railroad service had been under social security, he would have qualified for a social security annuity of $210 per month based on combined railroad and nonrailroad employment. The railroad retirement system is credited with $60 per month, the difference

between the social security annuity of $210 per month and the actual social security annuity of $150 per month with respect to this employee.

Administrative expenses

Since the Social Security Administration saves a certain amount of administrative expenses because railroad employment is not covered under the Social Security Act, the railroad retirement system is reimbursed for these savings. Social security determines unit costs that they incur for the individuals who are covered by that program. These unit costs differ by category of beneficiary and between new awards and those already on the rolls at the beginning of the year. Because social security incurs an administrative cost for dual beneficiaries, no additional cost (except for the maintenance of wage records) is charged for these individuals.

Legislative History of the Provisions of the RRA, 1935-73

The railroad retirement system was established by legislation dating from 1935 as a retirement annuity plan for aged and disabled railroad employees, with only a token provision for death benefits. The accompanying chart shows in chronological order how legislative changes through 1973 have broadened the scope of the system by bringing in many other types of benefits so that railroad retirement became a comprehensive social insurance program while still' retaining many of its original features. The chart also shows all important liberalizations and improvements in the benefits themselves as well as the changes in the financial structure of the system. (See Page 2 for chart organization of various provision items in chronological order.)

The chart is intended for general reference purposes only, and as such, describes in general terms only the major provisions. It has not been submitted to the Bureau of Law for clearance.