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The problem of dual beneficiaries has not occurred overnight. In 1953, when the problem was discussed in the report of the Joint Committee on Railroad Retirement established under Sen. Con. Res. 51, 82d Cong., approximately 15 percent of railroad retirement beneficiaries were also entitled to social security benefits. The report stated “With regard to persons with ten years or more of service the problem of dual benefits is not now serious, and if this ever should become a problem in the future, it could be solved by amendment to the Railroad Retirement Act, or the Social Security Act, without integration.” (S. Rept. 6, Part I, 83d Cong. 1st Sess., p. 6.)
Today approximately 40 percent of railroad retirement beneficiaries are also entitled to social security benefits. This has resulted from liberalizations in eligibility requirements for social security benefits being enacted, and from acts repealing restrictions on railroad retirement benefits for persons also receiving social security benefits.
Unfortunately, the former restrictions contained in the Railroad Retirement Act upon receipt of benefits under the Social Security Act operated harshly, and in a fashion which was almost impossible to defend. The legislation containing these restrictions was recommended by the labor organizations, and the restrictions were supported by management. One such provision required reducing the annuity of a retired employee who qualified for social security by the full amount of his annuity based on pre-1937 service, or his social security benefit, whichever was less. Another restriction provided for the reduction of any survivor's benefit by the full amount of any social security benefit which the survivor was entitled to in his own right. A third restriction provided for the reduction of any spouse's benefit by the full amount of any social security benefit to which the spouse was entitled in her own right.
These restrictions, in effect, provided that where a person eligible for benefits under the Railroad Retirement Act then worked and paid taxes under the Social Security system, for all practical purposes he forfeited the Social Security he had worked and paid for, because his railroad retirement annuity was reduced by his full social security benefit. In other words, the employee, survivor, or spouse would have worked and paid taxes to the Social Security system and then wound up receiving nothing in return. Since these restrictions were almost impossible to defend, they were repealed in laws enacted in 1954, 1955, and 1965.
The present bill avoids this problem with respect to future beneficiaries, by providing that Tier I of an individual's benefit will be computed, and where non-railroad employment occurs, recomputed, under the Social Security Act, thereby avoiding the forfeiture effect of the former restrictions contained in the Railroad Retirement Act.
Another factor leading to the increase in dual beneficiaries arises out of the “new start" provisions contained in the Social Security Act by reason of amendments adopted in 1950 and subsequent legislation liberalizing eligibility for benefits under that Act. Up to 1950, the Social Security Act required a sufficient number of quarters of coverage for a person to become fully insured to make it difficult for a person to qualify for benefits under both Acts. Since 1950, the required number of quarters of coverage for many individuals to become eligible for Social Security benefits is much less than was formerly the case, so that the number of dual beneficiaries has grown through this liberalization.
In other words, the increase in dual beneficiaries from 15 percent of milroad retirees to 40 percent is, in large measure, attributable to Acts of Congress which have made it possible for individuals to qualify under both Acts. Each year the problem has grown just a bit greater than it was the year before, but it was not until the Commission on Railroad Retirement submitted its report in 1972 that the full dimensions of the problem became apparent.
From the point of view of equity among recipients of Social Security benefits, the present situation cannot be permitted to continue. Railroad retirement benefits are set at the levels they are at today because of the financial benefits to the system arising out of the financial interchange. In other words, each railroad retirement benefit contains a Social Security component-however, the social weighing of the Social Security formula provides proportionally greater benefits arising out of this Social Security component for persons also receiving Social Security benefits than would be the case if all the employment of the individual concerned had been employment covered under the Social Security Act.
The following chart illustrates this point, with Column A representing the total of the Social Security component contained in each present railroad retirement benefit, plus Social Security benefits based on non-railroad earnings, and Column B representing the amount which would be paid under the Social Security Act if both the railroad and non-railroad service used in Column A had been combined in computing the Social Security benefit.
The Commission on Railroad Retirement stated in its report that these dual benefits illustrated by column A above are inequitable in the sense that a minority of railroad employees receive an advantage not available either to the majority of career railroad employees those who spend their entire working life in the railroad industry—or to employees in other private industries. But the Commission also was of the view that any plan to eliminate these dual benefits should include protection of the equities of existing beneficiaries and employees with claims upon such benefits. Dual beneficiaries cannot fairly be criticized, since they have merely secured the benefits to which they are entitled under existing law. That is why their equities should be preserved.
RESOLUTION OF THE DUAL BENEFIT PROBLEM Resolution of the so-called "dual benefit” problem is central both to insuring the fiscal soundness of the railroad retirement system and to establishing equitable retirement benefits for all railroad employees.
The fundamental step contained in the bill is to place the social security level of benefits for railroad employees under a single combined retirement system. Under the bill the Tier I benefits payable will include a social security component which will be equivalent to the benefit that would be payable under the Social Security Act if based upon the employee's combined railroad and non-railroad service and compensation. Concomitantly, the employee's non-railroad service and compensation no longer will entitle him to a separate benefit under the Social Security Act. As a result, dual benefits will be eliminated, appropriate credit will be given to the employee's nonrailroad (as well as to his railroad) service and compensation in calculating his retirement benefit, and a “windfall” no longer will be possible except insofar as the bill expressly preserves benefits for those beneficiaries and employees whose equities entitle them thereto.
The most difficult problem in this regard involves the manner in which dual benefits should be phased out on an equitable basis. The bill provides as follows:
First, the dual benefits of beneficiaries on the rolls as of January 1, 1975 would continue to be paid in full. However, the portion of those dual benefits which a beneficiary would not receive had a single social security benefit previously been calculated on the basis of his combined railroad and non-railroad service and earnings would not be subject to future increases in the level of social security benefits. In effect, therefore, the amount of that portion will be frozen as of December 31, 1974. This is the approach recommended by the Commission on Railroad Retirement."
Second, employees without sufficient railroad and non-railroad service and compensation by December 31, 1974 to have fully qualified under both systems would not be entitled to a dual benefit. All such employees, upon retirement, would receive a single benefit calculated on the basis of their railroad and non-railroad service and compensation. In addition, however, such an employee upon retirement (or his survivors if he should die before retirement) would be entitled to a lump-sum refund of employment taxes paid under the Railroad Re
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Forement, and ther as of us 30 mo
tirement and Social Security Acts prior to January 1, 1975 in excess of what he would have paid if all of his employment prior to that date had come under the Railroad Retirement Act. Again, this is what the Commission on Railroad Retirement recommended.
Third, employees who have sufficient service and compensation to be fully qualified under both systems but who have not retired prior to January 1, 1975, would be divided into two classes or groups.
The first group would be comprised of those employees with a "current connection" with the railroad industry-12 months of railroad service out of the previous 30 months, as defined in the 1937 Act and in the bill, either as of December 31, 1974 or as of the date of retirement, and also of those employees with 25 years or more of railroad service even though without such a "current connection.” This group also would receive, upon retirement, a dual benefit based upon service and compensation prior to January 1, 1975. The amount thus determined to be in excess of the amounts which would have been received if the employee's railroad service and non-railroad service had been combined in determining the Social Security portion of his benefit would be subject to increase prior to retirement by reason of cost-of-living increases in the level of social security benefits during that intervening period, but would be frozen upon retirement, as would be done in the case of dual beneficiaries retired as of December 31, 1974.
The second group would be comprised of employees who, after qualifying for benefits under the Railroad Retirement Act, left the railroad industry without having 25 years of railroad service and who do not now have a current connection to the railroad industry. Under the bill they would not receive a dual benefit, upon retirement, unless they also had fully qualified under Social Security by the close of the year prior to 1975 in which they left railroad service (although they would be entitled to the lump-sum benefit refunding excess employment taxes paid). If they had so qualified under both systems at that point, however, they would receive dual benefits, upon retirement, calculated as of the time they left railroad service, and subject to cost-of-living increases in the level of social security benefits after 1974 and prior to retirement. The excess benefit would be frozen upon retirement, as in the case of other dual beneficiaries.
The bill also contains generally similar provisions for terminating or phasing out dual benefits of spouses and survivors of railroad employees.
FREEZING A PORTION OF DUAL BENEFITS As was mentioned above, a portion of the dual benefits to which any individual may be entitled will be "frozen" under the bill. Future costof-living increases under the Social Security Act will be applicable to Tier I benefits, and future cost-of-living increases will be applicable to Tier II benefits under the new Railroad Retirement Act of 1974.
In the case of individuals who are permitted under the bill to receive Social Security benefits in addition to Railroad Retirement benefits, the bill provides that a portion of those benefits will not be subject to future cost-of-living increases. To determine the amount subject to the freeze, the Railroad Retirement Board will compute the Social Security benefit to which the individual would have been entitled based