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amended, or any negotiated labor cost increases and comparable increased costs for other employees”.
(5) Page 12, beginning in line 17, strike out “Thereafter,” and all that follows down through page 13, line 6, and insert in lieu thereof the following:
“(b) The Commission shall within sixty days before the date of establishment of interim rates under paragraph (4)(a) of this section commence hearings for the purpose of making the final rate determination. The Commission shall then proceed to make such final rate determinations. In making such determination, the Commission may take into account all factors appropriate to ratemaking generally under part I of this Act and shall determine such final rates under the standards and limitations applicable to ratemaking generally under part I of this Act.
PRINCIPAL PURPOSE OF THE BILL The bill carries out the terms of an agreement reached through nationwide collective bargaining between representatives of most major railroads in the United States and unions representing their employees. The agreement was entered into on March 7, 1973, as a preliminary step in the resolution of the financial difficulties facing the railroad retirement fund.
The bill extends the present temporary increases in railroad retirement benefits enacted in 1970, 1971 and 1972 for 18 months (until December 31, 1974); liberalizes retirement eligibility for certain employees; transfers to railroads the liability for payment of taxes otherwise payable by employees to finance the railroad retirement system to the extent such taxes exceed social security tax rates; establishes an expedited rate-setting procedure before the Interstate Commerce Commission to assist the railroads in meeting the costs imposed on them by the bill; and provides for recommendations to be made by July 1, 1974 by the parties through collective bargaining for a final resolution of the problems involving the railroad retirement system.
Section 6 of Public Law 92-460 clearly contemplates some final congressional action with respect to the financial problems facing the railroad retirement system. In the committee's view, the present bill represents practical legislation as a first step in the resolution of these difficult and complex long-range problems. Moreover, the committee is encouraged to believe that despite the huge task ahead, railroad labor and management have evidenced every intention of continuing to work together so that a solution to the problems will be arrived at within a reasonable length of time. The committee is particularly impressed by the hopeful expressions of the parties in their joint letter of February 27, 1973, confirmed in their testimony before the committee, that they will in the near future return "with a plan that not only meets the policy expressed by the Congress but also can be fully supported by both railroad labor and management." The committee is honeful that this will occur long before July 1, 1974.
The committee is not unmindful of the criticism which might be leveled at the bill with regard to the provision which permits the carriers to obtain prompt rate increases to offset the increased employer taxes levied under the bill. The critics, however, should recall that under present law and procedures the carriers could be entitled to similar rate increases, subject to the same requirements of justification
therefor as are required under the bill. Thus, the bill provides nothing in this regard, other than promptness, which would not be available without the legislation. It is the committee's understanding that the carrier's agreement to the other provisions in the bill was of necessity .contingent on additional funds becoming available with which to meet the additional tax liabilities that the bill would create. Because the committee believes that this is an interim step toward resolution of the financial problems faced by the railroad retirement system and because good fiscal management requires additional income to offset additional expenditures, the committee has included this provision in the reported bill.
COMMITTEE CONSIDERATION; COSTS Hearings were held on May 1 and 2, 1973, with testimony being received from the Railroad Retirement Board, the Association of American Railroads, the National Railway Labor Conference, the Railway Executives Association, the Congress of Railroad Unions, and the National Association of State Regulatory Utility Commissioners. The committee considered the bill in executive session on May 3, .1973, adopted amendments set forth above, and ordered the bill reported to the House by a voice vote.
Section 101 of the bill, liberalizing retirement eligibility for men is estimated to cost the railroad retirement account $70 million a year on a level-cost basis (see discussion on page 23 of this report). Section 103 extends for 18 months the temporary benefit increases enacted in 1970, 1971, and 1972, at an estimated total cost to the railroad retirement account of $660 million for the 18-month period.
Sections 104 and 105 of the bill provide for increases in benefits under the railroad retirement system if benefits are increased under the social security system between July 1, 1973, and December 31, 1974, but no cost estimate is possible with respect to these provisions. Section 102 of the bill shifts the liability for payment of 4.75 percent of taxable payroll from employees to carriers, but involves no cost to the United States or to the railroad retirement system. The other provisions of the bill involve no cost to the United States or to the railroad retirement system.
TABLE 1.- TAX RATES-SOCIAL SECURITY AND RAILROAD RETIREMENT, PRESENT LAW AND H.R. 7200
i Maximum earnings taxed are $10,800 a year under social security and $900 a month under railroad retirement. 2 Maximum earnings taxed are $12,000 a year under social security and $1,000 a month under railroad retirement.
% Maximum tax cannot be computed for these years because starting in 1975 the annual tax base will be automatically increased at the same rate as average earnings under social security increase.
Nationwide bargaining was conducted in 1972 and early in 1973 between representatives of all railroads in the United States and representatives of employees. The negotiations covered wages, provisions relating to union dues checkoff, extension of medical and group life insurance, along with liberalization of major medical benefits, and railroad retirement benefits.
An agreement was reached dealing with each of these issues, contingent upon the enactment of necessary legislation to carry out certain recommendations with respect to the railroad retirement system. This bill carries out those recommendations.
Under the agreement, the unions agreed to support legislation to be sought by the railroads to provide for modification of Interstate Commerce Commission procedures so as to permit prompt freight rate increases to cover increases in costs. The bill carries out this recommendation with respect to the costs to the railroads of the additional taxes which they are required to pay under this legislation.
The text of this agreement is set forth in Appendix A of this report beginning on page 33.
The agreement proposes dealing with the problems of the railroad retirement system in two steps. The first step is preliminary in nature, and consists of three major provisions; first, a liberalization of retirement eligibility for male employees (similar to the provision in present law which applies to female employees), which will permit them to retire at age 60 after 30 years of service, without the actuarial reduction presently required; second, an eighteen-month extension (until December 31, 1974) of the present temporary benefit increases applicable to railroad retirement benefits, with agreement on the part of the carriers not to object to making these benefit increases permanent after December 31, 1974; and third, an agreement on the part of the carriers to pay a portion of the taxes otherwise payable by employees to finance the railroad retirement system.
The second step in the eventual solution of the financial problems of the railroad retirement system involves an understanding between the parties that a joint standing committee will be established to consider all of the matters relating to restructuring the railroad retirement system, with recommendations to the Congress for the necessary legislative changes to be submitted on or before July 1, 1974.
PROBLEMS OF THE RAILROAD RETIREMENT SYSTEM
It is generally recognized that the railroad retirement system is faced with financial problems. Established initially in 1935, separate and distinct from the social security system, the railroad retirement program today provides about 1 million beneficiaries with monthly payments under the program and provides for payment of future retirement benefits to over 600,000 present employees and to all eligible former employees of the railroads, and their dependents. ".
TABLE 2.-RAILROAD RETIREMENT, BENEFITS AND BENEFICIARIES MARCH 1973
Rapidly declining levels of employment in the railroad industry in recent years have brought about a situation in which there are 1.6 people drawing benefits each month from the railroad retirement fund for every one person paying taxes into the fund. This disparity between the numbers recipients of benefits and persons paying taxes to support the system will increase in future years until the effects of the decline in railroad employment begin to be reflected in declining numbers of persons entitled to monthly benefits under the system. As a result, income to the program is less than outgo, and if benefits are continued at present levels and if no additional revenues are provided, the railroad retirement system will be bankrupt in the mid-1980's.
Historically, whenever social security benefits have been increased, railroad retirement benefits have also been comparably increased. In 1970, in response to a 15-percent increase in social security benefits, the Congress enacted a 15-percent increase in railroad retirement benefits. At that time the committee received testimony from the chairman of the Railroad Retirement Board to the effect that, without additional financing, the railroad retirement system would become depleted in the 1980's by the increase. For this reason, the Congress established a Commission on Railroad Retirement to study the problems of the railroad retirement system and report thereon to Congress. Because of the complexity of the subject matter, it was necessary to extend the life of the Commission and the time for it to make its report, which was transmitted to the Congress June 30, 1972.
During the course of the Commission's deliberations, social security benefits were increased by 10 percent, and later by an additional 20 percent, and the Congress made corresponding increases in railroad retirement benefits. The cost of these increases was partially paid for through the financial interchange program, discussed below, and by increases in the amount of wages taxed. : ;.. . . . .,
FINANCIAL INTERCHANGE WITH SOCIAL SECURITY .....
The railroad retirement system contains a program usually referred to as “financial interchange,” under which the railroad retirement system pays, annually to the social security system an amount 'equal
to the total in social security taxes which would have been paid by railroad employees into the social security system if railroad employment were covered employment under the Social Security Act. These payments have been made covering the entire period that the social security system has been in operation. In return for these payments, the social security system transfers to the railroad retirement system, each year, an amount equal to the total in social security benefits that would have been paid under the Social Security Act to all retirees and dependents, and survivors, if railroad employment had been considered as covered employment under the Social Security Act. Offsets are made against these latter transfers where the retiree is also in receipt of social security benefits.
During the period in which the social security system has been paying benefits, more in total benefits has been paid to the social security beneficiaries on the rolls than the total amount of the taxes paid on the earnings which are the basis for the benefit payments. This situation has also been reflected in the operation of the financial interchange program, under which about $7.5 billion net has been transferred into the railroad retirement system as a result of the financial interchange program over the years. The financial interchange program was designed to place the social security system in the same situation it would be in if all railroad employment had been covered employment under the social security system from the beginning of that system, and it has done so. Moreover, because of the amounts transferred from social security to the railroad program the financial interchange program has to date contributed substantially to helping maintain the solvency of the railroad retirement system.
A serious problem for the railroad retirement system involving the financial interchange program is the existence of large numbers of so-called “dual beneficiaries”; that is, persons receiving benefits under the Railroad Retirement Act and concurrently receiving benefits under the Social Security Act. As a practical matter, the amounts transferred from the social security system to the Railroad Retirement Act on behalf of each dual beneficiary are reduced by the total amount of social security benefits received by the dual beneficiary. The net effect of these offsets is that a railroad retirement beneficiary who qualifies for social security benefits receives his social security benefits at the expense of the railroad retirement account.
The annual reduction in financial interchange income to the railroad retirement account arising out of these dual benefits, is currently about $500 million per year, and these losses are likely to increase in the future as more and more retirees and their survivors become eligible for social security benefits.
THE COMMISSION ON RAILROAD RETIREMENT The Railroad Retirement Act is one of the most complex acts in Federal law. It contains its own formulae for the computation of benefits, and also provides a guarantee that no beneficiary under the Railroad Retirement Act will receive less than 110 percent of the amounts he or she would receive if all relevant railroad employment had been covered under the Social Security Act. Approximately 10 percent of retirees (generally persons with short service or large families), and approximately two-thirds of widows, children, and dependent parents receive