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not create a “class of beneficiaries" not entitled to social security benefits prior to January 1, 1975.

Section 3 specifies the benefits that will be payable to railroad employees who retire after December 31, 1974 and Section 4 specifies the benefits that will be payable to their spouses and survivors. Those benefits will include a social security component equivalent to what would be paid under the Social Security Act upon the basis of the employee's combined railroad and non-railroad service and compensation, an additional “staff" component based on the employee's railroad service and earnings, and certain cost-of-living adjustments and other features. Dual benefits under this Act and the Social Security Act will be eliminated except as they would be preserved for employees, spouses and survivors equitably entitled thereto by reason of their existing qualifications. The staff component of employee benefits generally will be based on the 1937 Act insofar as service prior to January 1, 1975 is concerned, and spouse benefits generally will be 50% of the benefits of the employee to whom the spouse is married as is true under the 1937 Act. Survivor benefits generally will be 130% of the comparable benefits payable under the Social Security Act, while under the 1937 Act such benefits generally are only 110% of comparable social security benefits.

Title II of the bill provides for the benefits to be payable to beneficiaries already on the rolls—railroad employees, and their spouses and survivors, who retired prior to January 1, 1975. As provided therein, those benefits would be payable under the applicable provisions of Sections 3 and 4 of Title I, would be similarly divided into social security and staff components, etc. However, since all of the railroad seryice and compensation upon which such benefits are based will have occurred prior to January 1, 1975, the entire staff component will be based on the benefits payable under the 1937 Act, and the bill will insure that the benefits payable will not be less than those payable under the present law (including the Social Security Act as well as the 1937 Act). In addition, all such existing beneficiaries who presently are receiving a dual social security benefit will have that benefit (as of December 31, 1974) preserved.

Titles III, IV and V of the bill would amend various provisions of the Social Security Act, the Railroad Unemployment Insurance Act and the Railroad Retirement Tax Act (as included in the Internal Revenue Code of 1954). Most of these amendments are pro forma, such as changing references to the 1937 Act so as to refer to the 1974 Act which Title I of the bill would enact.

Title VI of the bill contains effective dates-generally January 1, 1975.

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A NEW BENEFIT FORMULA AND THE TWO TIER SYSTEM

The Commission on Railroad Retirement recommended that a new benefit formula be adopted, including a so-called "two tier" system under which railroad employees would be brought directly under the social security systems the first "tier"--and would receive in addition a supplemental retirement benefit calculated on a different basis the second “tier."

Although the bill would not adopt the "two tier” system in form, esentially it does so in substance. One major component of the new railroad retirement benefit formula which the bill would establish is in essence a social security benefit. That component would be calculated on the basis of the formula provided in the Social Security Act as applied to all of the employee's wages and service, non-railroad as well as railroad. All future increases in the level of social security benefits would be applied to this component of the new railroad retirement formula, both to people who retire after the increases become effective and to people on the retirement rolls, in the same way as if they were social security beneficiaries.

Under the financial interchange between the railroad retirement and social security systems, which the bill would retain, this social security component would be financed by the social security system as at present, and that portion of both employer and employee railroad retirement taxes that are the equivalent of social security taxes would be transmitted to the social security system as at present.

Consequently, when taken together with the phaseout of dual benefits, these provisions of the bill should accomplish the principal goal of the Commission's “two tier” recommendation--a clear and permanent isolation of the social security component of railroad retirement benefits based upon combined railroad and non-railroad service and compensation, from the additional component riding on top of social security which is based on railroad service and compensation alone and is financed by the railroad industry.

In regard to that additional component-the part that would ride above the social security level of benefits and is commonly called a "staff" level of benefits-the Commission on Railroad Retirement believed that the existing formula under the 1937 Act is unduly complex and also that, projecting results over the next 30 years or so, the formula would produce benefits having an unrealistic relationship to wage levels.

The bill revises the formula substantially. The bill provides that the staff component of the new railroad retirement formula basically will be calculated upon two factors, career railroad earnings and a flat dollar amount per year of service. In addition, a supplemental annuity would be paid to employees who have 25 years or more of railroad service and a current connection with the industry when they retire, substantially as is done under the 1937 Act.

The bill provides that benefits based on service prior to the effective date of the new Act (January 1, 1975) will be computed under the old formula provided in the 1937 Act, so that the new formula will make no change in that regard. The bill also would provide two transitional elements a special credit for service prior to January 1, 1975, and an eight-year "grandfather clause" applicable to all retirement benefits except the frozen portion of dual benefits. Taken together, these features of the bill would insure that no employee retiring within the next eight years will receive less than he would under the formula as it exists today computed under the current limit on creditable compensation. Indeed, most career railroad employees retiring in the next several years should receive somewhat more benefits if the bill is enacted than they would have received under the old formula as so computed.

It should be noted that the bill in effect would make permanent three increases in the level of railroad retirement benefits under the 1937 Act which the Congress, commencing in 1970, put into effect on a temporary basis pending a restructuring of the railroad retirement system. Those temporary increases, which were respectively 15%, 10% and 20% of then existing benefits, will expire at the end of this year unless new legislation is enacted. They increased the benefits by about 52% on a cumulative basis. They would continue to be taken into account under the bill, however, in computing that part of the “staff” component based on service prior to January 1, 1975, and for purposes of the "grandfather clause." Beneficiaries on the rolls prior to January 1, 1975 will be assured under the bill that their benefits as of Demember 31, 1974 will not be reduced, so that those temporary increases also will in effect become a permanent part of their benefits if the bill is enacted.

The new benefit formula which the bill would establish contains another feature which has no counterpart in the 1937 Act-cost-of-living adjustments in the level of benefits. Since the social security component of the formula will be the equivalent of benefits payable at the time under the Social Security Act, the level of that component will be increased at the same time and in the same amount as the level of social security benefits is increased, including increases resulting from the automatic cost-of-living adjustments under Section 215(i) of the Social Security Act. This not only will maintain a congruence between the level of the social security component and the level of benefits under the Social Security Act, but also will insure retired railroad employees of at least as much protection against inflation as the Social Security Act affords to retired employees in other industries.

In addition, moreover, the bill would provide for a cost-of-living escalation in the level of the “staff” component of the new benefit formula. There would be four such cost-of-living adjustments during the six-year period commencing January 1, 1975. For beneficiaries on the rolls at the time, the first such adjustment would become effective as of June 1, 1977, and would be calculated on the basis of 32.5% of the increase in the Consumer Price Index between the first quarter of the prior year and the first quarter of that year. Similar adjustments would be made effective June 1 of each of the following three years. For employees in active service, the staff part of the benefit formula would initially be adjusted as of January 1, 1978, which adjustment would be calculated on the basis of 65% of the increase in the Consumer Price Index between September of 1976 and September of 1977, with an offset for increases in maximum creditable compensation. There would then be three similar adjustments as of January 1 of each of the following three years, and each such adjustment would benefit all employees (and their spouses) who retire after the effective date of the adjustment.

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COMPONEXTS OF AN ANNUITY COMPUTED UNDER THE PROVISIONS

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* The bill provides that this portion of an individual's benefit shall not hereafter be subject to cost-of-Uving increases, although Tier 1 and Tier 2 will be.

AXNUITY ELIGIBILITY CONDITIONS UNDER THE PROPOSED BAILROAD

RETIREMENT ACT

The eligibility requirements for regular employee age and disability annuities under the proposed Railroad Retirement Act would remain the same as under present law. The eligibility conditions for an employee's entitlement to a supplemental annuity would differ from those contained in the present law only in that under the new Act an employee who has completed 30 years of service would be eligible for a supplemental annuity at age 60 rather than at age 65; the applicability of this liberalization, however, would be confined to employees whose regular annuities first began to accrue on or after July 1, 1974.

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In the case of spouses, the present law provides that a spouse of an employee can be eligible for a spouse's annuity only if the employee has attained age 65. Furthermore, a spouse who does not have a child of the employee in her care can receive an unreduced spouse's annuity only if she has attained age 65 or a reduced annuity if she has attained age 62. These eligibility requirements would be liberalized under the proposed Act to provide: (1) that a spouse of an employee who has 30 years of service would be eligible for an unreduced annuity when both she and the employee have attained age 60 [this liberalization would be applicable only in cases where the employee's annuity first began to accrue on or after July 1, 1974) and (2) that a spouse of an employee who has less than 30 years of service can receive an unreduced spouse's annuity when the employee has attained age 62 and the spouse has either attained age 65 or has a child of the employee in her care or a reduced spouse's annuity when the employee and the spouse have both attained age 62 [this liberalization would be applicable only in cases where the employee's annuity first begins to accrue on or after January 1, 1975).

The eligibility requirements for survivor annuities under the proposed Act would be the same as those set forth in the present Act.

Finally, the proposed Act contains a provision which would provide automatic adjustments in the eligibility requirements for social security level annuity amounts or health care benefits provided under the Act whenever amendments to the Social Security Act become effective after December 31, 1974, to liberalize the eligibility requirements for similar benefits under that Act. No person can become entitled to an annuity under the Railroad Retirement Act by reason of this provision if : (1) the Social Security Act provided benefits for such a person prior to 1975 but the Railroad Retirement Act did not (examples of such persons would be divorced wives and children of living employees) or (2) the person does not satisfy a requirement contained in the proposed Railroad Retirement Act of a kind which was either not imposed by the Social Security Act on December 31, 1974, or was not liberalized by the amending legislation. Furthermore, the provision in question would not operate to provide annuities to an employee, and those deriving from him, who has less than 10 years of railroad service or to survivors in a case where the employee did not have a current connection with the railroad industry at the time of his death.

COMPUTATION OF ANNU'ITIES UNDER THE PROPOSED RAILROAD RETIREMENT

ACT

An employee's regular annuity under the proposed Railroad Retirement Act would consist of two basic components a social security level component computed under the social security benefit formulas on the basis of the employee's combined railroad and nonrailroad earnings (this component would be reduced by the amount of any monthly social security benefit actually paid to the employee) and a staff level component based on railroad service only. The staff level component would be composed of subcomponents based on past service

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