This is a report of the Railroad Retirement Board on the bill S. 3522, which was introduced on May 21, 1974, by Mr. Biden.
The bill would, by amendment of Section 2(g) of the Railroad Retirement
Act of 1937, remove the provisions from the Act which subject a spouse's
annuity to the same provisions as an employee's annuity as to the loss
of annuity for months in which the annuitant works for the "last
person" by whom he was employed before the annuity began to accrue
even though such last person is not an employer. The change in the
law would be effective with respect to annuities which become payable
for months after the bill is enacted on the basis of applications
filed in or after the month the bill is enacted.
The Railroad Retirement Act of 1935, which preceded the Railroad Retirement Act of 1937 and which was amended by the 1937 Act, permitted work for any person other than an employer without loss of annuity payments.
During the hearings in 1937 on the bill to amend the Railroad Retirement
Act of 1935, a witness for the Association of American Railroads and
the standard railway labor unions stated that the provisions in the
1935 Act in this respect discriminated against career railroad workers
who stayed in the railroad industry until reaching retirement age and
favored those railroad workers who left the railroad industry before
that time and engaged in other employment. (Hearings before the House
Committee on Interstate and Foreign Commerce, 75th Congress, on
H.R. 6956, pp. 74-75. Hearings before the Senate Committee on Interstate
Commerce, 75th Congress, on S. 2395, p. 53.) The latter, upon attaining
Honorable Harrison A. Williams, Jr.
age 65, could receive their annuities under the Railroad Retirement Act in addition to their salaries for services for a nonemployer, while the former workers, after retirement, have only their annuities to rely upon. The purpose of the provisions, which the bill would modify to a substantial degree, was to avoid this discrimination. Congress then apparently accepted the views in support of these provisions and has continued them in effect ever since although amending the Act in other respects on many occasions.
In the court's opinion in the case of United States v. Bush, 255 F.
2d 791, 793 (C.A. 3, 1958), a case involving the provision the bill
would amend, there is a very good explanation for the inclusion of the
provision in the Act. The pertinent part of that opinion follows:
"The legislative history of Section 2 is also significant.
In view of the limited resources available for retirement
benefits, Congress believed that if participation in such
benefits was to be confined to those who had completely
retired from the labor market as distinguished from those
who were still employed, a more generous provision could
be made for a group which was completely reliant upon re-
tirement benefits. Accordingly, it was suggested that the
Railroad Retirement Act of 1937 contain a provision which
would prevent an annuity in respect to any calendar month
during which an annuitant was engaged in regular gainful
employment. Hearing Before the Committee on Interstate
and Foreign Commerce, 75th Cong., 1st Sess., H.R. 6956,
P. 96.
However, it was also recognized that under the
proposed legislation some railroad men might require
moneys in addition to pensions and that therefore they
should be permitted to find work after retirement.
Hearing Before the Committee on Interstate and Foreign
Commerce, House of Representatives, 75th Cong., 1st Sess.,
H.R. 6956, p. 75.
"A compromise was arrived at whereby Congress gave expres-
sion both to the consideration that retirement benefits
should be confined to those genuinely retired and to the
countervailing consideration that some supplementation of
retirement income through post retirement employment might
be desirable. The former principle was expressed in the
requirement of an absolute cessation of all gainful em-
ployment and the relinquishment of all right to return to
such employment if such right existed, viz., Section 2(a),
2(b); the latter was expressed in the provision permitting
such employment as the annuitant might be able to find
from sources other than the person or persons by whom he
was employed at the time his annuity began to accrue:
viz., Section 2(d). House Report No. 1069 accompanying
H.R. 7519, 75th Cong., 1st Sess., page 4 (June 18, 1937).
Honorable Harrison A. Williams, Jr.
It will be noted that while Section 2(d) permits the
annuitant to engage in employment after he has completely
retired from the labor market, that employment may not be
for the person or persons by whom he was employed at the
accrual of his annuity.
"It was believed that under employment conditions as they
existed in 1937 individuals who gave up their then current
employment and were not allowed to return thereto would
not be likely to secure other jobs, and therefore the act
was weighted on the side of requiring complete and perma-
nent retirement from the labor market with maximum benefits
possible for the dependent retired group. H.R. 6956, 75th
Cong., 1st Sess., p. 96.
"That the purpose behind this plan has been realized is
indicated by the fact that the average age of retirement
is now slightly over 68 even though the Railroad Retire-
ment Act provides for retirement at age 65. Annual Report,
Railroad Retirement Board 1956, p. 114. The realization
that a retirement at 65 years of age will result in an
income reduction causes a substantial number of railroad
employees to continue to engage in railroad service. As
a consequence, the postponement of retirement results in
a saving to the railroad retirement fund of an estimated
$65,000,000 annually. Hearings Before Subcommittee of
the Senate Committee on Interstate Commerce, 76th Cong.,
1st Sess., on S. 1112, pp. 11, 14-15.
"If an employee could obtain non-railroad employment before
retiring and could retire from railroad employment with the
assurance that he could keep such job with its additional
income, the employee doubtless would hasten his retirement.
The result of this would obviously be a diminution of the
available fund or a revision in tax rates levied for the
support of retirement benefit payments. It is therefore
clear to us that Congress could not have intended the ex-
ception engrafted upon the Railroad Retirement Act by the
court below."
If the bill were enacted, a wife (or husband) of a railroad employee, who is receiving an annuity as such, would be more favorably treated than the employee as to the right to gain income from employment in addition to annuity payments. This would be true even though a spouse's annuity is, of course, payable only because of the employee's right to an annuity. The preferred treatment as to the spouse's annuity would, in effect, constitute a discrimination against the employee.
Honorable Harrison A. Williams, Jr.
When the spouse's annuity was included in the Railroad Retirement Act by legislation enacted in 1951, the purpose, as stated by the Senate Committee considering the legislation was, in effect, to increase annuity income in cases of greatest need, that is, where two aged persons rather than one had to live largely on the annuity income. The financing of the railroad retirement system was not such as to permit a general increase in annuity amounts. Thus, the spouse's annuity was considered to be but an extension of the employee's annuity rights. As a consequence, the spouse's annuity was made subject to the restriction against "last person" service.
The annuity of a widower or bachelor is no larger than the annuity of a married man even though the service and compensation records are the same and the wife of the latter receives an annuity as such. The enactment of the bill could cause annuity income of a married employee and his wife to be even greater relatively.
Effects on the Financial Condition of the System
The bill would impose some small additional costs on the railroad retirement system which, it is estimated, would come to $1 million a year. Even this small additional cost cannot be absorbed under the present financial arrangement because of the existing deficit, on a long-range actuarial basis, of almost $530 million a year on a level basis, or 9.06 percent of taxable payroll.
As you know, the report of the Commission on Railroad Retirement, which the Congress established in 1970, led to the introduction in Congress this year of companion bills S. 3612 and H.R. 15301, which contain a completely revised Railroad Retirement Act. Since these bills contain a provision which precludes spouses from receiving annuities while they are engaged in last person service, the Congress will have an opportunity to weigh the merits of this policy without regard to S. 3522. Separate consideration of S. 3522 at this time would, therefore, tend to complicate matters unnecessarily.
The Board, therefore, recommends that your Committee not act favorably on this bill.
Honorable Harrison A. Williams, Jr.
Copies of this report have been sent to the Office of Management and Budget for its views but at the time of mailing this report they had not been received by the Board.
Sincerely yours,
RF Bulli
FOR THE BOARD
R. F. Butler, Secretary
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