tions of the Commission on Railroad Retirement designed to Pursuant to the above-quoted section 6, representatives of railroad labor and management met on a number of occasions in an effort to comply with the congressional directive expressed in the above section 6. On February 27, 1973, the parties addressed a joint letter to the Chairmen of the Senate Committee on Labor and Public Welfare, and the House Committee on Interstate and Foreign Commerce, concerning the progress they had made. That letter is set out in appendix B to this report beginning on page 38. The parties continued their efforts and agreed on the following: [For complete text of agreement, see appendix A, page 35.] "MEMORANDUM OF UNDERSTANDING "A. Railroad Retirement Legislation "The carriers and the railway labor unions will jointly support legislation which will accomplish the following: "(a) The temporary benefit increases of 1970, 1971 and 1972 (P.L. 91-377, P.L. 92-46, and P.L. 92-460, respectively) scheduled to expire June 30, 1973, will be extended through December 31, 1974. "(b) A joint Standing Committee consisting of members representing the railway labor unions and the carriers will be established to consider all of the matters relating to restructuring the Railroad Retirement System, including but not limited to such matters as financing the deficiencies, dual Railroad Retirement and Social Security benefits, adoption of a two tier system (i.e., a Social Security tier and a supplementary Railroad Retirement tier), restructuring of the benefit formulas, consideration of any matters considered by the Commission on Railroad Retirement, and any other subjects which the parties may propose. The joint Standing Committee will report to the Congress by July 1, 1974. If the joint Committee can not agree on a joint report and recommendations, the railway labor unions and the carriers will submit ex parte reports to the Congress by July 1, 1974. "(c) The Railroad Retirement Tax Act to be amended to provide that commencing October 1, 1973 the employers will assume the 4.75% of the employee taxable compensation in excess of the 5.85% employee Social Security tax (a maximum of $42.75 per employee per month in 1973, and a maximum of $47.50 per employee per month in 1974). "(d) The Railroad Retirement Act to be amended to provide that commencing July 1, 1974 employees with 30 years of service and attained age of 60 may retire without actuarial reduction in their annuities. "(e) If during the period July 1, 1973 through December 31, 1974 the Social Security Act is amended to provide for increased benefits, the dollar amount of such benefit increases will be "passed through" to the Railroad Retirement benefit structure effective on the same date or dates the Social Security benefits are increased. "(f) Except as specifically provided in this Part A, neither the carrier nor the railway labor unions will propose or support legislation seeking changes in benefit levels or new types of benefits to become effective prior to January 1, 1975." It is the purpose of the bill to give legislative sanction to this memorandum of understanding. GENERAL EXPLANATION OF THE BILL The bill as reported is divided into three titles; title I of the bill contains provisions which would amend the Railroad Retirement Act and the Internal Revenue Code, title II would amend the Interstate Commerce Act, and title III contains a separability provision. Title I of the bill is further divided into three parts, only two of which are substantive; part A contains provisions which would be in effect until the end of 1974, while part B contains provisions which would become effective after 1974. As was mentioned previously, title II of the bill is not within the jurisdiction of this Committee and is being considered independently by the Committee on Commerce. The first section of the bill would permit men to retire on full-railroad annuities at age 60 provided that they had at least 30 years of railroad employment. Under the present law, men with 30 years of service who retire between ages 60 and 65 receive reduced annuities, while women of the same age who have at least 30 years of railroad employment are paid full annuities. The provision would become effective on July 1, 1974, and cease to apply after December 1974. This section is identifical to a provision in House-reported H.R. 7200, except that under the House bill the provision would continue in effect after 1974. The Committee has no reason to believe that this provision will not be made permanent along with the temporary benefit increases, as soon as a method is found to put the system on a sound actuarial basis. The Committee felt, however, that because this provision does represent a drain on the fund of approximately $70 million a year, it should be put on the same temporary footing as the recent benefit increases. This is based upon the principle that permanent changes should not be made to the detriment of the fund until permanent financing is found. The second section of the bill would reduce railroad retirement taxes paid by employees by 4.75 percent, from 10.6 percent of wages to 5.85 percent (the rate paid by employees under the social security program). Employer taxes would be increased by an identical 4.75 percent of wages, from 10.6 percent to 15.35 percent. The new tax rates would be effective generally for wages paid after September 1973 and before January 1975. This section is identical to a provision in House-passed H.R. 7200. In another section, the House-passed bill would provide an exception to this provision for certain railroads and dock companies. Under the exception, the new rates would not apply to the so called "steel roads" until the earlier of (a) the expiration of their current labor contracts, or (b) the time such contracts are re-negotiated. Under the committee amendment, the exception would be provided also for certain railway labor organizations which find themselves in the same position with regard to their labor contracts as the steel roads. The third section would extend until December 31, 1974, the 15 percent increase in annuities which became effective in 1970, the 10 percent increase in annuities which became effective in 1971, and the 20 percent increase in annuities which became effective in 1972. This section is identical to a provision in House-passed H.R. 7200. Sections 104, 105 and 106 of the bill provide automatic increases in railroad annuities if social security benefits are increased after June 1973 and before January 1975. If social security benefits are increased in this period, the increase in individual annuities will be the same dollar amount that would have been provided had the individual been receiving a social security benefit based on similar earnings covered under social security. These sections are identical to the provisions of House-passed H.R. 7200. The House-passed bill would establish a joint labor-management group consisting of members representing the railway labor unions. and the carriers to consider all matters relating to the restructuring of the Railroad Retirement System. This group would report its recommendations to the Senate Committee on Labor and Public Welfare and to the House of Representatives Committee on Interstate and Foreign Commerce not later than July 1, 1974. In the view of the committee, the provision of the House-passed bill does not spell out in sufficient detail the composition and duties of the labor-management group. Moreover, if it did not submit its recommendation well before July 1, the Congress might not have adequate time to consider what is expected to be a major restructuring of the Railroad Retirement system involving coordination with the social security program. Therefore, the committee amendment revises this provision of the House-passed bill. The committee amendment would call on representatives of employees and representatives of railroad employers to create a joint group to recommend changes in the railroad retirement program which will assure the long-range actuarial soundness of the program. The group would be expected to notify Congress within 30 days after the bill is enacted of the names and positions of its members. In preparing its report, the group would be expected to meet at least once a month, and to furnish Congress with interim progress reports. The interim reports would be submitted on September 1, 1973, November 1, 1973, and January 1, 1974. The final report would be submitted to Congress no later than March 1, 1974 (rather than July 1 as under the House bill). It is expected that the recommendations for restructuring the railroad retirement program will take into account the recommendations of the Commission on Railroad Retirement and that the recommendations will be specific and in a form suitable for legislative action. Section 120 of the bill would provide that the temporary early retirement provision for men authorized by section 101 of the bill and the temporary benefit increases of 15, 10 and 20 percent-which section 103 of the bill authorized through December 31, 1974-would become permanent on January 1, 1975, provided certain tax rate increases (see below) are made effective by further legislation. Section 121 provides for a railroad retirement tax increase to go into effect January 1, 1975 in the amount of 7.5% of taxable payroll above other retirement taxes already in the Internal Revenue Code. The burden of this tax is not allocated between employers and employees, but is left to further legislation. It is the Committee on Labor and Public Welfare's strong belief that the solution of the serious financial problems facing the Railroad Retirement Fund cannot be delayed beyond the 18-month extension of the temporary benefits increases provided in this bill. That is the reason the Committee included provisions imposing a 7.5 percent tax commencing January 1, 1975. Although further legislation would be required to allocate the tax before it could become legally effective, the Committee intends these provisions to serve as clear notice of its intention to take appropriate action to deal with the long-range financial problems of the Fund. The 7.5 percent figure is based on the Railroad Retirement Board's current estimate of the amount required to put the Railroad Retirement Fund on an actuarially sound basis, assuming that the temporary increases become permanent and the 30 year retirement provisions in this bill become effective. However, the Committee also wishes to point out that the 7.5 percent figure is not inflexible, and that should the parties agree on a restructuring of the system which reduces the actuarial deficit faced by the Fund-for example, by agreeing to eliminate dual benefits-the 7.5 percent figure can be reduced to whatever amount is appropriate. The Committee is confident that before this increase becomes effective the parties will be able to achieve a solution to the long-range funding problems through collective bargaining under section 107 of this bill. However, the Committee must also recognize the need to provide for funding in this bill, if the parties are unable to reach an agreement. The Committee hopes that this provision will act as an incentive to the parties to provide their own solution, which, of course, may include a reevaluation of the benefit structure as well as changes in the tax rate. The comments of the Office of Management and Budget are also relevant in this regard (see page 30 of this report) and it is hoped that the inclusion of this provision in the bill will forestall a possible veto. COST ESTIMATES PURSUANT TO SECTION 252 OF THE LEGISLATIVE The following two tables show the income, outgo and year-end balances of the Railroad Retirement Account as estimated by the Railroad Retirement Board for fiscal years 1973 through 1978. Table 3 shows the figures under the present tax and benefit provisions while table 4 shows the figures as they would be following enactment of the committee bill. TABULATION OF VOTES CAST IN COMMITTEE ON LABOR AND PUBLIC WELFARE Pursuant to section 133 (b) of the Legislative Reorganization Act of 1946, as amended, the following is a tabulation of votes in Committee: Motion by Mr. Schweiker to strike Sec. 121 as ameneded. Rejected: 8 yeas, 8 nays. The bill was ordered reported by unanimous voice vote. TABLE 3.-PROJECTION OF RAILROAD RETIREMENT ACCOUNT TRANSACTIONS-PRESENT LAW 1 1 Law in effect on Apr. 25, 1973, except that the temporary increases are assumed to be extended until June 30, 1978. Includes effects of Public Law 92-603 (H.R. 1). Assumes cost of living increase for SSA of 5.1 percent on Jan. 1, 1975, and 5.5 percent on Jan. 1, 1977. a Preliminary, partly estimated. 3 Includes transfers for military service. Does not allow for increase in building rental. • Interest rate of 6.25 percent used for years 1973-74 through 1977-78. TABLE 4-PROJECTION OF RAILROAD RETIREMENT ACCOUNT TRANSACTIONS LAW AFTER H.R. 7200, AS REPORTED BY THE COMMITTEE ASSUMING NO INCREASE IN RAILROAD FORMULA ANNUITIES ! 1 H.R. 7200 as reported out by Senate committee on June 5, 1973. Temporary increases made permanent. Also retirement at age 60 with 30 or more years of service made permanent. Permanent increase in tax rates of 7% percent effective Jan. 1, 1975. Calculations assume for any social security increase after Dec. 31, 1974, the increase will not be passed through to beneficiaries paid on the railroad formulas. Cost of living adjustments of 5.1 percent on Jan. 1, 1975, and 5.5 percent on Jan. 1, 1977, are assumed to take place under the provisions of Public Law 92-336 (H.R. 1). It is also assumed there would be no SSA adjustments prior to Jan. 1, 1975. * Preliminary, partly estimated. 3 Includes transfers for military service. • Does not allow for increase in building rental. Interest rate of 64 percent used for fiscal years 1973-74 through 1977-78. At this date-June 6, 1973-these figures are probably overstated. They have been retained in order to facilitate comparisons with an earlier projection. |