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benefits computed under this formula. This then means that the railroad retirement system contains all the complexities of the social security system built into its own inherent complexities. In addition, the financial interchange operates to render the determination of costs under the system extremely complex.
Serious questions of philosophy are involved in attempting to restructure this program, involving primarily questions involving the extent to which persons who have not yet begun to receive benefits under either the railroad retirement or the social security system have a vested right to benefits. These questions become particularly crucial in attempting to deal with the problem of dual benefits.
In order to provide assistance to the Congress and to the interested parties, the Commission on Railroad Retirement was established and made its recommendations to the Congress. The principal recommendation of the Commission calls for the restructuring of the railroad retirement program into a two-tier system, under which railroad employees would receive a basic benefit payable exactly the same as social security benefits, with a second tier of benefits over and above the social security tier. A summary of these recommendations is set out in appendix C to this report, beginning on page 38.
FREIGHT RATE INCREASES UNDER THE BILL
Ultimately all costs incurred by any segment of industry in the United States are paid by the consumer. For example, non-contributory retirement plans in large industries, such as the automobile industry, steel, and rubber involve costs to the employer that in the final analysis are generally considered as being paid for by the consumer. .
In the past the railroad retirement system has been funded by taxes paid equally by employers and taxes paid by employees; however, fundamentally the amounts paid both by the employers and by the employees have come out of the revenues of the railroad industry, which, as in other industries, are an eventual charge on the consumer.
The bill provides (section 201) that upon the effective date of the increases in taxes paid by the carriers under this legislation, the railroads may submit a verified petition to the Interstate Commerce Commission for an increase in freight rates to cover the costs of the added taxes. The Commission must within 30 days thereafter permit the establishment of these increased rates unless it finds that the proposed increase currently exceeds the cost involved. Once permitted, the rates may be made effective or not more than 30 nor less than 10 days notice to the public. The Commission shall then, acting under its normal procedures, consider the matters involved in the increase under its substantive rules. If the Commission determines that the increase in rates, if applied for under other sections of the Interstate Commerce Act, would be denied in whole or in part, the Commission may order such reductions in the increased rates as it determines would be required by the Interstate Commerce Act. Upon such a determination being made by the Commission, the railroads will be required to refund the excess rates which they have charged during the period between their establishment under the new
procedure and the date the Commission's determination becomes effective.
In other words, the only effect the bill will have on freight rates is to provide an accelerated procedure for putting into effect increases which otherwise might be delayed under present Commission procedures. The Committee was particularly impressed by testimony given on behalf of the Association of American Railroads to the effect that the loss in revenue to the railroads over the past 5 years arising out of the time lag between the date of application for increases and the date such increases are finally allowed has been in excess of $1 billion.
The procedure contained in the reported bill, described above, differs substantially from the procedure which would have been required under the introduced bill, and in the opinion of the Committee meets the major objections raised by the Interstate Commerce Commission to section 201 of the bill contained in the report of the Commission.
INTRASTATE RATE INCREASES Under section 202 of the bill, rate increases allowed under the expedited procedure set forth in section 201 with respect to interstate rates are also made applicable to intrastate rates. Historically, the lag between requests for rate increases and the date of granting of these increases has been particularly acute in the field of intrastate rates. The Committee feels that the justification submitted by the carriers with respect to accelerated interstate rates applies with equal validity to intrastate ratemaking.
As introduced, the bill would have provided accelerated rate increases to cover not only the cost increases to employer arising out of the tax changes brought about by this bill, but also any future tax increases presently scheduled to take effect, as well as tax increases which might hereafter be voted by the Congress, plus all future negotiated labor cost increases, and comparable increases granted other employees.
An amendment to section 201 of the bill adopted by the Committee limits the scope of the accelerated rate increases to the tax increases imposed on the railroads by this bill. The amount of these tax increases at present wage levels will be approximately $250 million a year of . which approximately $200 million will be applied to interstate rates and the remainder to intrastate rates.
These accelerated rate increases are subject to the same refund provisions as apply to interstate rates. The level of intrastate rate increases is deemed to be justified at the same level as is found justified for interstate rate increases by the Commission. The interstate increases are deemed to be prescribed within the meaning of section 13(4) of the Interstate Commerce Act.
LABOR COST AND OTHER COST INCREASES' * .
As was pointed out above, the introduced bill would have permitted accelerated rate increases to cover (1) costs arising under this bill, (2) costs of future tax increases, and (3) increased future labor costs. The bill was amended to limit the accelerated rate increases 'to increases necessary to cover only costs arising under this bill. The
committee recognizes that the overall problem of "regulatory lag” described in the testimony given on behalf of the Association of American Railroads can be a serious one. Lengthy delays in approval of rate increases needed to pay for increased labor costs, as well as other costs, can create a serious problem for rail carriers. The Committee feels that this overall regulatory problem should not be dealt with in this bill, which is primarily devoted to finding a solution to the immediate problems of the railroad retirement system. Therefore, the provisions of this bill should not be considered as establishing a precedent affecting any future legislation which might be offered in this area.
This bill establishes a speedier procedure for rate increases to pay for the increased costs of the railroad retirement tax payment which is being assumed by the carriers. The Committee anticipates that further railroad retirement tax increases, and a procedure for meeting the increases in costs arising out of them, will be among the recommendations to be submitted to the Congress next year, and the committee will consider these matters at that time. Although the committee adopted an amendment deleting from the bill a provision which would have automatically made any future tax increases subject to the accelerated rate-making procedure of section 201, the committee does not intend by that action to express its approval or disapproval of this procedure in future legislation on this subject.
PROVISIONS OF THE BILL .. One of the purposes of title I of the bill is to extend to male employees in the railroad industry the same eligibility conditions for annuities now available to women employees, that is, eligibility for full annuities on the basis of age 60 and 30 years of service, effective for annuities first accruing after June 1974. Another purpose is to extend the temporary increases in annuities (discussed below) from July 1, 1973, through December 31, 1974. The bill would also reduce employee railroad retirement taxes to the social security tax rates with respect to compensation.paid for service rendered after September 1973 and would increase the employer railroad retirement tax rates by the same amount (4.75 percent) to compensate for the reduction in the employee tax rates. The bill also calls on railroad labor and management to establish a joint committee which will make recommendations, not later than July 1, 1974, to Congress as to how the railroad retirement program can be restructured on an equitable and actuarially sound basis. Finally, title I. of the bill would provide for increasing the railroad retirement annuities any time social security benefits are increased in the period before January 1, 1975, by the same dollar. amount by which they would have been increased if the service and compensation on which the annuities are based had been employment and wages, respectively, under the Social Security Act. The purpose of title II of the bill is to allow the railroads a more expeditious method of obtaining freight rate increases necessary to offset those cost increases which stem from railroad retirement tax increases. Title III of the bill is intended to protect the validity of the remaining pro- ;' visions of the bill, if enacted, should any provision, or its application in a particular case, be held invalid.
TEMPORARY BENEFIT INCREASES
Benefits under the Railroad Retirement Act were increased on a temporary basis as follows:
(a) Public Law 91-377 increased benefits by 15 per cent.
(c) Public Law 92-460 increased benefits by 20 per cent. All these temporary benefits are to expire on June 30, 1973. It was the intention of all concerned to provide finances sufficient to make all these temporary increases permanent. For this purpose section 6 of Public Law 92-460 provided as follows:
SEC. 6. It is the policy of the Congress of the United States that the 20-percent increases in annuities of Railroad Retirement beneficiaries provided by this Act, as well as the 10percent and 15-percent increases provided by Public Law 92-46 and Public Law 91–377, respectively, all of which will expire by the terms of such Acts on June 30, 1973, can be made permanent only if at the same time a method is adopted to insure the receipt of sufficient revenues by the Railroad Retirement Account to make such Account financially solvent based on sound actuarial projections. Accordingly, representatives of employees and retirees and representatives of carriers shall, no later than March 1, 1973, submit to the Senate Committee on Labor and Public Welfare and the House of Representatives Committee on Interstate and Foreign Commerce a report containing the mutual recommendations of such representatives based upon their negotiations and taking into account the report and specific recommendations of the Commission on Railroad Retirement designed to insure such solvency. A copy of the report of such representatives shall also be submitted to the Railroad Retirement Board, which, no later than April 1, 1973, shall submit to such committees of the Congress a report containing its views and specific recommendations, and those of the administration, with reference to the report submitted by such repre
sentatives. 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 Chairman of the Senate Committee on Labor and Public Welfare, and the House Committee on Interstate and Foreign Commerce, concern. ing the progress they had made. That letter is set out in appendix B to this report beginning on page 36..
The parties continued their efforts and agreed on the following (for complete text of agreement, see Appendix A, page 33) : ,
.: “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 bene- , fit 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 Title I of the bill would (i) enable men employees to retire on full annuities at age 60 upon completion of 30 years of service, the same as women employees can do under present law, effective with respect to annuities which begin to accrue after June 1974, (ii) reduce the employee railroad tax rate to the social security rate, effective with respect to compensation paid for service rendered after September 1973, and increase employer tax rates, effective at the same time, to compensate for the reduction in employee tax rates, (iii) extend to December 31, 1974, the increases in railroad retirement benefits which are due to expire on June 30, 1973, and (iv) provide for increases in railroad retirement benefits (other than annuities computed under the first proviso of section 3(e) of the Railroad Retirement Act of 1937—the