with the Bureau of the Budget. A copy of the report is being forwarded to the Bureau of the Budget today and you will be informed of the views of that Bureau as soon as they are received. Sincerely yours, HOWARD W. HABERMEYER, Chairman. RAILROAD RETIREMENT Board, Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C. DEAR MR. HARRIS: This is the report of the Railroad Retirement Board on the bill, H.R. 1012, which was requested by your committee. The bill would amend the Railroad Retirement Act, the Railroad Retirement Tax Act, and the Railroad Unemployment Insurance Act in the following respects: RAILROAD RETIREMENT ACT 1. Annuities (including spouse and survivor annuities), pensions, and lump sums (other than the "residual" lump sum) would be increased generally by 10 percent. The increase would be slightly more than that for most employee retirement annuities and survivor annuities computed under the regular railroad retirement formulas (as much as 1.4 percent more for some survivor benefits), because the increased percentages proposed by the bill in these formulas reflect "rounding out" the result, after application of an exact 10 percent increase in the computation factors. 2. The maximum amount of compensation creditable under the Railroad Retirement Act for a month would be increased from $350 to $400 effective with respect to service rendered after December 31, 1958. 3. The privilege now available to any employee with 30 years of service of electing to receive a reduced annuity to begin after age 60 and before age 65 would be available to women employees with 10 years of service at age 62, and, at the same age, to wives or husbands of annuitants. The reduction would be by 80 for each calendar month the beneficiary is under age 65. 4. The earnings test now applicable to disability annuitants, under which any disability annuitant under age 65 does not receive an annuity for any month in which he is paid more than $100 in earnings, would be modified by the addition of a provision that if the annuitant's earnings in any calendar year do not exceed $1,200, the annuity otherwise not payable because of his earnings in any month in that year, would become payable. Earnings from employment with an "employer" under the act or for the annuitant's "last employer" before he retired, would not count towards this $1,200 maximum. (No annuities are payable for months of such earnings by virtue of another provision of section 2(d) of the aRilroad Retirement Act.) Even if the annuitant's earnings exceed $1,200 in any year, loss of annuity would not exceed 1 month's annuity for each $100 or less (if more than $50) that the annuitant earned in excess of $1,200. 5. The formula for computing the "residual" lump sum would be amended in conformity with amendments proposed to the Railroad Retirement Tax Act (increasing as of January 1, 1959, the tax rate on employees to 64 percent and to 74 percent after December 31, 1961, and the maximum amount of compensation subject to the tax after December 31, 1958, to $400) by increasing the percentage factor applicable to compensation after 1958 to 71⁄2 percent and to 8 percent after 1961, and increasing the maximum amount of compensation for any month to which such factors are applicable from $350 to $400 for any month after December 31, 1958. 6. The changes made by the bill would be effective with respect to all annuities payable for months after December 1958, to pensions due in calendar months after January 1959, and to lump sums payable with respect to deaths occurring after 1958. RAILROAD RETIREMENT TAX ACT The bill would increase the tax rate on employees and employers from 64 percent to 64 percent after December 31, 1958, and to 74 percent after December 31, 1961, and make the tax applicable to $400 instead of $350 of the em ployee's compensation earned in any month after December 1958. The tax rate would be increased with respect to compensation paid after 1964 by the same number of percentage points (or fractions of percentage points) by which the then current social security tax rate exceeds 24 percent. The tax rate on employee representatives would be increased from 122 percent to 131⁄2 percent after December 31, 1958, and to 141⁄2 percent after December 31, 1961, and the tax base also raised to $400. This tax rate would also be increased with respect to compensation paid after 1964, just as in the case of the employer and employee, but this increase would be by twice the number of percentage points (or fractions of points) that the then current social security tax rate exceeds 234 percent. RAILROAD UNEMPLOYMENT INSURANCE ACT 1. A new schedule of daily benefit rates for both unemployment and sickness benefits ranging up to $1.70 higher than present rates would be provided. The alternative rate, which is now 50 percent of the employee's daily rate of pay in his last employment with an employer in the "base" year, would be increased to 60 percent of such daily rate of pay. The maximum daily benefit rate would be increased from $8.50 to $10.20. These increases would be effective with respect to benefits payable in general benefit years after the benefit year ending on June 30, 1958, and in extended benefit periods, described below, as early as January 1, 1958. 2. The maximum amount of compensation for a month, for which credit would be given and contributions required, would be increased from $350 to $400, effective with respect to compensation paid for service rendered in calendar months after December 1958. 3. The minimum amount of earnings in a "base" year which would qualify an employee for benefits would be increased from $400 to $500, effective with respect to "base" years after 1957. 4. An employee with 10 or more years of railroad service who is out of work through no fault of his own and has exhausted current rights to normal unemployment benefits, would receive additional benefits during an extended benefit period. The duration of such extended benefit period would be for an employee with less than 15 years of service 7 successive periods of 14 days each but would be limited to benefits for 65 days of unemployment, and for an employee with over 15 years of service 13 successive periods of 14 days each with a limitation of benefits to 130 days of unemployment. 5. For an employee with 10 or more years of service who did not voluntarily leave work without good cause or voluntarily retire and who is not a “qualified employee" for the current benefit year but would be for the next succeeding benefit year such year begins on the first day of the month in which a period of 14 or more consecutive days of unemployment begins. 6. An employee with less than 10 years of service who, after June 30, 1957, has exhausted his rights to unemployment benefits may be paid benefits for days of unemployment not exceeding 65 which occur on and after June 19, 1958, and before April 1, 1959, if for such days he would not be otherwise entitled to benefits, except that an employee who has established a first claim for benefits under the Temporary Unemployment Compensation Act of 1958 would not be entitled to benefits under this provision. 7. The maximum number of days of unemployment in the first registration period in a benefit year for which benefits may be paid would be increased from 7 to 10, the same as it is now with respect to all subsequent registration periods. 8. Sundays and other holidays would be treated the same as other days for unemployment benefit purposes. 9. To provide funds for the additional benefits that are proposed, the bill, in addition to raising the maximum taxable earnings for a month, from $350 to $400 and increasing from $400 to $500 the minimum earnings in a base year which would qualify a worker for benefits in the benefit year, as stated above, would provide for a contribution or tax rate of not less than 1% percent when the money in the railroad unemployment insurance account totals $450 million or more, which rate would be raised, by steps, to 32 percent when the money in the account falls below $300 million. The provision for increase in the contribution rate would be effective as of January 1, 1959, and would apply only with respect to compensation paid for services rendered after December 31, 1958. IMMEDIATE EFFECT OF AMENDMENTS TO THE RAILROAD RETIREMENT ACT Employee annuities An estimated 355,000 employee annuities, averaging $117, in course of payment on January 1, 1959, would be increased by 10 percent to an average of almost $129. For an employee retiring on January 1, 1959, the maximum annuity that could be paid would rise from about $186 to $204. Subsequently, after the new $400 ceiling on taxable earnings goes into effect, the maximum would rise slowly up to the end of 1966. Thereafter, the maximum will rise more rapidly since more than 30 years of service will become creditable toward annuities. An estimated 44,500 retirement annuity awards, averaging about $139 would be made in calendar year 1959. These figures include about 500 awards to women employees aged 62 to 64 who would elect to accept a reduced annuity. Spouse annuities An estimated 129,000 spouses on the rolls on January 1, 1959, would also have their annuities increased by 10 percent. The average spouse annuity in current-payment status on January 1, 1959, would be increased to about $57. The estimated 16,000 unreduced spouse annuities to be awarded in calendar year 1959 would average $56. The new maximum spouse annuity would be $65.50 in January 1959, and would increase to $66.60 in February 1959, and to $69.90 in February 1960. There are an estimated 36,000 spouses aged 62 to 64 who could elect to receive reduced spouse annuities. In the absence of specific experience and for the purposes of this report, it has been arbitrarily assumed that about three-fourths of them, or 27,000, would choose to accept such reduced benefits. The reduced benefits would average about $50. Pensions An estimated 1,400 pensioners on the rolls on January 1, 1959, would receive 10-percent increases, bringing their average benefit to about $91 compared with the average of $82 under the present law. Survivor annuities The estimated 239,000 survivor benefits in current-payment status on January 1, 1959, would be increased at least 10 percent. The maximum basic amount possible on January 1, 1959, under the new formula would be $79, while the maximum family benefits would be $193.60 and $279 under the railroad retirement and social security guarantee formulas, respectively. An estimated 18,000 insurance lump-sum benefits would be paid in the calendar year 1959. The average lump sum would be $560. Disability work clause The immediate effect of the change in the disability work clause would be comparatively small. About 1,000 annuities are withheld each month under the present provision and the amount of annuities withheld in a year totals about $1 million. The proposed change in the disability work clause is estimated to reduce the amount withheld in the first year by about $200,000. Total benefit payments Total benefit payments under the provisions of the bill in calendar year 1959 are estimated at about $900 million, or $95 million more than would be payable under the present law. Of the additional $95 million, $81 million is attributable to the 10-percent increase in monthly and lump-sum benefits and the remaining $14 million to the new benefits for women employees and spouses aged 60-64. Tabular summary The two attached tables illustrate the effect of the proposed amendments. Table 1 shows the effect on benefits in course of payment on January 1, 1959, and table 2 covers benefit awards in calendar year 1959. TABLE 1.—Estimated number of monthly benefits in current-payment status on Jan. 1, 1959, and estimated average monthly amount before and after increases under the bill, by type of benefit 1 After adjustment for increases under 1958 Social Security Act amendments. 2 Includes 7,000 disability annuitants aged 50-64. TABLE 2.-Estimated number of awards in calendar year 1959, and average benefit under present law and the bill, by type of benefit 1 There will be an estimated 36,000 spouses of retired employees, and 1,000 women employees with less than 30 years of service, aged 62-64, eligible to elect reduced annuities. It is assumed that 34 of the spouses and 1⁄2 of the women employees would make such elections. IMMEDIATE EFFECT OF AMENDMENTS TO THE RAILROAD RETIREMENT TAX ACT The bill proposes to amend the Railroad Retirement Tax Act, effective January 1, 1959, by raising the monthly limit on taxable earnings from $350 to $400, and by increasing the combined rate of tax from the present 122 percent to 132 percent in 1959-61 and to 142 percent in 1962-64. In addition, the rate of tax in 1965 and thereafter would be increased by the excess of future actual social security rates over 52 percent. Assuming that the railroad industry will be recovering from the low level of activity experienced during the 1957-58 economic recession with a consequent gradual increase in employment, and taking into consideration the increases provided in existing wage agreements, the effect of the proposed legislation on railroad retirement taxes in calendar years 1959-62 would be as follows: ACTUARIAL EFFECTS OF PROPOSED AMENDMENTS TO THE RAILROAD RETIREMENT and RAILROAD RETIREMENT TAX ACTS As stated before the proposed amendments pertaining to the retirement and survivor programs would increase the benefit disbursements in 1959 by about $95 million to a total of about $900 million. Of this $81 million is attributable to the 10-percent increase in monthly and lump-sum benefits and the remaining $14 million to the liberalized eligibility requirements for women employees and spouses as well as to certain other provisions of a relatively minor nature. Costs of benefits, on a level basis, would be increased about $147 million a year. It is further estimated that the additional immediate and deferred taxes would bring in about an extra $115 million a year until 1962 when the amount would be about $175 million a year. In 1969, if the contingent increase in taxes becomes effective, as scheduled after 1964, the amount would reach about $370 million a year. A year-by-year estimate of the additional taxes on both employers and employees is shown in table 3. Of the $114 million in additional taxes ($57 million to be paid by the employers ard an equal amount by the employees), in 1959, $63 million would be due to taxing compensation between $350 and $100 a month at the rate of 121⁄2 percent; and the remaining $51 million a year would be due to the additional one percentage point of tax on the total estimated taxable payroll of $5.1 billion for the year. The rise in 1962 would result mainly from the additional percentage point in the combined tax rate with similar situations occurring in later years. Considering both additional outgo and additional income, the estimates indicate that the added revenues would exceed the added disbursements by about $180 million a year on a level basis, which is equivalent to 3.21 percent of a $5.6 billion taxable payroll. Since the actuarial deficiency for the present law, calculated as of December 31, 1958, is estimated at 3.81 percent of that payroll (adjusted from 4.18 of a $5.1 billion payroll), the enactment of the amendments would leave the railroad retirement system with an actuarial deficiency of 0.60 percent of payroll (3.81 minus 3.21) or about $34 million a year. The derivation of the above actuarial deficiency figure is shown in table 4 together with a breakdown of the major cost figures for the proposed program by source of cost or of savings, as the case may be. An analysis of the cost effects of the proposed amendments considered by themselves is presented in table 5. As previously indicated, the total level additional disbursements are estimated at about $147 million a year, or 2.63 percent of taxable payroll, while the additional revenues come to 5.84 percent of payroll or $327 million a year on a level basis. The distribution of the added costs over the years would depend upon the nature of the amendment. Thus, the disbursements due to the increase in the limit on creditable compensation ($44 million a year after considering the proposed 10-percent increase in benefits) would be felt to only a very minor extent during the first several years following enactment of this provision. How. ever, the additional income on the extra creditable compensation would begin to accrue in full almost immediately. On the other hand, the lowering of the retirement age for women on an elective basis would result in considerable additional disbursements in the immediate future, but these would later be largely offset by reductions in benefits payable after age 65. |