(service prior to January 1, 1975, the effective date of the new Act) and future service. The past service subcomponent would consist of two pieces: (1) an amount computed under the present Railroad Retirement Act on the basis of railroad service through December 31, 1974, less an imputed social security benefit amount based only on railroad service through December 31, 1974; and (2) $1.50 for each of the employee's first 10 years of railroad service prior to 1975 plus $1.00 for each year of the employee's railroad service prior to 1975 in excess of 10 years of service this amount would be provided only for employees who engage in railroad service after 1974. The future service portion of the employee's staff level benefit would be equal to the sum of one-half percent of the employee's average monthly compensation after 1974 plus $4.00 multiplied by the employee's years of service after 1974. Both the first piece of the employee's past service subcomponent and the future service subcomponent would be subject to cost-of-living adjustments due to increases in the unadjusted Consumer Price Index during the period from September 30, 1976, through the earlier of September 30 of the year preceding the year in which the employee's annuity begins or September 30, 1980.

In addition to his regular annuity, an eligible employee would receive a supplemental annuity (which would be considered a part of his total staff level annuity component) ranging in amount from $23.00 to $43.00. Finally, an employee with "vested rights" to benefits under both the Railroad Retirement Act and the Social Security Act as of a specified date (December 31, 1974, in the case of some employees and December 31 of the year in which the employee last performed railroad service in the case of other employees) would receive an additional benefit amount based on his employment prior to 1975. This amount is intended to preserve an eligible employee's "right" to such dual benefits as had accrued prior to the effective date of the new Railroad Retirement Act.

Employee annuitants currently receiving annuities would continue to draw the same amounts they were receiving before the effective date of the new Act, but their annuities would be divided into social security level components and staff components. Up to four automatic cost-of-living adjustments in the staff level annuity components would be provided for employees whose annuities began to accrue on or before the effective date of any particular increase these increases, which would be 32.5 percent of the applicable annual increase in the unadjusted Consumer Price Index, would become effective June 1, 1977, June 1, 1978, June 1, 1979, and June 1, 1980, respectively.

Spouses' annuities, like employee annuities, would consist of a social security level component plus a staff level component. Generally speaking, the amount of each component would be equal to one-half of the employee's corresponding component (exclusive of the employee's supplemental annuity), subject to the same spouse maximum as is contained in present law. The social security level component would be reduced if the spouse is entitled to a social security benefit based on either the employee's earnings or her own earnings. The spouse would, however, received an additional benefit amount if she had "vested rights" to benefits under the Railroad Retirement Act and

the Social Security Act as of the effective date of the proposed Act. This additional amount would compensate, with respect to benefit rights accrued prior to 1975, for the reduction in the social security level component of the spouse's annuity because of her entitlement to a benefit under the Social Security Act. Spouses' annuities being paid at the time the new Act becomes effective would be continued at the same rates but, like employee annuities, would be divided into components in accordance with the provisions of the new Act.

The employee and spouse annuities described above would be subject to a maximum which, in a case where the employee had maximum earnings, would, generally speaking, limit the combined employee and spouse annuities to the greater of (1) $1200 a month or (2) 90 percent of the employee's taxable earnings. In addition to this maximum provision, the new Act would contain two minimum provisions applicable to employee and spouse annuities. The first of these minimums guarantees that, in cases where the employee's annuity begins to accrue before 1983, the total of the annuities and supplemental annuity payable to the employee and his spouse for any month under the new Act cannot be less than the total amount that would have been payable to them for that month under the present Act as in effect on December 31, 1974, on the basis of the maximum monthly compensation creditable at that time. The second minimum provision is similar to the so-called social security minimum guaranty provision contained in the present Act. Generally speaking, it assures that the total monthly benefits to a retired employee and his spouse will not be less than the amount that would have been payable to the employee's family under the Social Security Act on the basis of his combined railroad and nonrailroad earnings.

A survivor, like an employee and a spouse, would be entitled to a social security level benefit under the new Act computed on the basis of the deceased employee's combined railroad and nonrailroad earnings. This benefit, like a social security survivor benefit, would be subject to reduction if the survivor becomes entitled to a social security benefit based on his or her own earnings. It would also be subject to reduction by the amount of the social security level component of any employee annuity to which the survivor may be entitled. The staff component of the survivor annuity would be equal to 30 percent of the social security level annuity component prior to any reduction due to receipt of a benefit based on the survivor's own earnings. An additional benefit amount may be payable to a widow or widower who had "vested rights" to benefits under both the Railroad Retirement Act and the Social Security Act on December 31, 1974. The new survivor annuity formulas would be applicable to survivors on the benefit rolls when the new Act becomes effective. These formulas would provide an increase in benefits for most survivors since survivors who are not entitled to benefits based on their own earnings now receive survivor annuities equal to 110 percent of the amount that would have been payable to them under the Social Security Act whereas under the new Act those same survivors would receive 130 percent of that amount. Those survivors on the rolls who would not receive an increase under the new formulas are assured that there will be no decrease in the benefit amounts to which they are entitled.

PLACING FINANCIAL INTERCHANGE WITH SOCIAL SECURITY ON A

CURRENT BASIS

Under the present law, funds are transferred each year between the railroad retirement program and the social security program so as to place the social security trust funds in the same position they would have been had railroad service been covered employment under the social security program. Therefore, each year the railroad program transfers to the social security program an amount equal to the amount of social security taxes which would have been paid on railroad service and the social security program transfers to the railroad program an amount equal to the amount of social security benefits that would have been paid in that year had railroad service been covered employment. In practice, the net transfer is from the social security program to the railroad program. These transfers are made on a delayed basis about 18 months after the railroad annuities and survivor benefits have been paid and include an amount to make up for the interest earnings that have been lost to the railroad fund as a result of the delay in the payment.

As introduced, H.R. 15301 would have modified this provision so that starting with fiscal year 1976 the transfers would have been made each month on a current estimated basis. In the course of the committee's consideration of the bill, representatives of the Social Security Administration informed the committee that while they had no objection in principle to the change proposed, it would come at an inopportune time. The current estimates of the costs of the social security cash benefits programs (old-age, survivors and disability insurance) indicate a close balance of income and outgo over the next few years and a significant long-range actuarial deficiency. As a result, changes in social security financing will be needed. It is anticipated that following studies by the current Advisory Council on Social Security (its report is due not later than January 1, 1975), recommendations for changes in the financing of the social security program will be sent to the Congress.

In recognition of the financial problems associated with the social security program, the committee has substituted for the provisions of the bill the provisions of present law which permit the transfers to be made on a delayed basis. It is anticipated, however, that further consideration will be given to a change of this nature after the Congress has had an opportunity to consider changes in the financing of the social security cash benefits program.

ADMINISTRATION OF SOCIAL SECURITY BENEFITS

Under the introduced bill, the Railroad Retirement Board, in addition to administering Railroad Retirement benefits would also have determined eligibility for, and the amount of, Social Security benefits for all persons who were actual or potential Railroad Retirement beneficiaries. The Board would have then provided for the payment of such Social Security benefits, and been reimbursed under the financial interchange program.

The Social Security Administration took exception to this provision of the bill, and the Committee has therefore modified the bill to meet those objections.

There must be close coordination between the Social Security Administration and Railroad Retirement Board in the administration of the benefits provided under the bill. A person's Tier I benefit (whether that person be a retired employee, the spouse of a retired employee, or a survivor of a deceased employee) will be determined under the Social Security Act. If the person whose Tier I benefit is being computed is also eligible for Social Security benefits, disregarding the railroad employment involved, the Tier I benefit may be either increased (in the event the other Social Security benefit is larger than the amount the person would receive based upon the railroad and other employment involved), or otherwise not affected (in the event the other Social Security benefit is equal to or less than the amount the person would receive based upon the railroad and other employment involved).

The introduced bill would have provided for all these computations to be made by the Railroad Retirement Board, and this method of administration of benefits would have been much simpler for the Board than the approach taken under the amended bill.

Under the amended bill, the Social Security Administration shall continue to administer benefits under the Social Security Act just as it does today, with one exception. When, in the course of adjudicating a claim for benefits, the Social Security Administration determines that the claimant is a railroad retirement beneficiary or a potential railroad retirement beneficiary, the Social Security Administration shall not, as is provided in existing law, certify the amount of the individual's check to the Secretary of the Treasury for payment. Instead, the Admnistration will certify the amount to the Railroad Retirement

Board.

The Board will then examine its rolls, and if the person on whose behalf the certification has been made is not at that time a railroad retirement beneficiary, the Board will forward the certification on to the Secretary of the Treasury for payment, just as is the case under existing law where the certification comes from the Social Security Administration. If the person on whose behalf the certification has been made is at that time a railroad retirement beneficiary, the Board will compute, or if necessary recompute, the individual's Tier I benefit and if he is eligible for dual benefits under section 3(h) or 4(h) of the bill, will make the necessary adjustments in the individual's check to be paid out of the Railroad Retirement Account to conform to the benefits formula set forth in the bill, including the "freeze" on a portion of benefits where dual benefits are involved.

With respect to persons presently receiving Social Security benefits who are also railroad retirement beneficiaries, there will be no certification by Social Security to the Board. This modification in the adminstration of benefits will apply only with respect to applications submitted for Social Security benefits after 1974. This means that the Board will be required to determine the portion of each present dual beneficiary's railroad retirement check which will be treated as the dual benefits which are not hereafter to be subject to cost-of-living or other

increases. Such a computation, however, need only be made once..tially when the Board recomputes all present benefits to split them into a Tier I and Tier II, level.

LAST EMPLOYER TEST

Under the present law, a railroad retirement annuity is payable only after an individual has stopped working for pay, whether for a railroad or outside the railroad industry. The bill as introduced would have continued this provision. A situation, however, was brought to the attention of the committee in which the provision resulted in undue hardship for a limited number of people who at the time of their retirement from the railroad industry are also engaged in part-time service as an elected public official; for example a member of a local school board or a State legislature. The committee, therefore has adopted an amendment which would modify the "last employer" provision to permit an individual who is an elected public official (Federal, State or local) to receive a railroad annuity without being required to resign his elected office.

HISTORICAL BACKGROUND OF THE BILL

Serious questions were first raised as to the actuarial soundness of the railroad retirement system in 1970 at the time that consideration was being given to an increase in railroad retirement benefits. Since adequate information on which to base long-term solutions was not then available, Congress established a Commission on Railroad Retirement to study the system and its financing for the purpose of mak11.g recommendations as to the measures necessary to provide adequate levels of benefits on an actuarially sound basis (Public Law 91-377). The Commission was to submit a report of its findings and recommendations by June 30, 1971. In 1971, however, it was established that the Commission could not complete its study and report by that date, and the due date of the report was extended one year by Public Law 92 46 to June 30, 1972.

On September 7, 1972, the report of the Commission was received by Congress. The principal recommendation set forth in this report called 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. The Commission further recommended that future accrual of dual benefits should be stopped, but that "legally-vested rights of railroad workers and railroad retirement beneficiaries to benefits based on socialsecurity-covered non-railroad service should be guaranteed; that a "firm financial plan" should be adopted to finance the second, or staff, tier of railroad retirement benefits on an assured, fully self-supporting basis by contributions from the railroad community; and that the railroad retirement benefit formulas should be restructured "to assure that the overall benefits in the future continue to bear a reasonable relationship to wages in a dynamic economy and to make benefits more equitable among the various groups of beneficiaries."