Page images
PDF
EPUB

Insurance and residual lump-sum benefits to survivors are provided by sections 6(b) and 6(c), respectively.

d. In addition to the provisions outlined above, the bill provides for certain maximums and minimums to be applied to benefits. There is a "100% overall minimum" in that retirement benefits paid under the bill cannot be less than 100% of the social security benefits that would be payable to the employee and his family on the basis of social security law if all of his railroad and social security earnings were covered under social security.

Section 3 (f) (1) provides for a maximum to be applied to the sum of employee and spouse benefits. Under static conditions, however, the provision is virtually inoperative. Section 3(f) (2) provides for an 8-year "guaranty" period. Employees who retire during that period and their spouses cannot receive less than they would have received under the Railroad Retirement Act of 1937 as in effect on Dec. 31, 1974, on the basis of the maximum monthly compensation creditable at that time. It is estimated that the cost of this guaranty provision will be negligible.

e. Cost figures for components of benefits to nonretired employees and future entrants are shown in table 1. The costs shown are costs to the railroad retirement system in excess of the amounts that will be reimbursed to the railroad retirement system through the financial interchange with social security. In other words, the figures reflect the costs for providing the full benefit that the annuitant will receive less the social security benefit computed on the basis of combined railroad retirement and social security earnings.

f. The bill will bring about a number of changes in the operation of the financial interchange. First, financial interchange transfers will be moved to an accrual basis which will accelerate the receipt of funds. by the railroad retirement account. Second, there will no longer be any reduction in the financial interchange reimbursement to railroad retirement for "dual benefits" (i.e., social security benefits received by railroad retirement annuitants based on social security earnings). Under the bill, all payments to railroad retirement annuitants under both the Railroad Retirement and Social Security Acts will be made. by the Railroad Retirement Board. Consequently, social security will not be making any payments that would result in a deduction from the financial interchange. Third, there is the matter of how windfall benefits will be financed which will be discussed later.

g. In most cases, individuals will not be able to earn credits toward a "dual benefit" based on wages after Dec. 31, 1974. Instead, an imputed social security benefit will be payable based on combined railroad retirement and social security earnings. Credit for social security earnings before Jan. 1, 1975, will be reflected in that benefit and in the windfall benefits provided. In certain instances, the Railroad Retirement Board will pay benefits to a person not eligible for railroad retirement benefits based on social security law and the social security earnings of an employee or spouse covered under railroad retirement.

70

This may arise in cases where a retired employee has children eligible for a social security benefit, where a divorced wife is involved, and when a widow remarries after the age of 60.

h. Costs and cost reductions arise from other differences between Social security law and the provisions of the bill. From a cost standpoint, the principal areas are the following:

(1) Employees with 30 or more years of service who retire after June 30, 1974, at the age of 60 or above ("60 with 30" employees) will be considered eligible for an unreduced social security benefit based on combined railroad retirement and social security earnings. Spouses of such employees will be entitled to an unreduced social security spouse annuity if they are age 60 or above.

(2) Occupational disability retirees are deemed to be totally and permanently disabled for the purpose of calculating their social security benefits on combined earnings.

(3) There is no 5-month waiting period for disability retirement benefits.

(4) The imputed social security spouse benefit based on the employee's combined earnings is subject to the railroad retirement age reduction factor of 1/180 for each month the spouse is below age 65 rather than to the social security age reduction factor of 1/144.

(5) Social security benefits based on the employee's combined earnings will not be paid to categories of beneficiaries not eligible for railroad retirement benefits under the bill. Such persons, however, may be eligible for benefits based on the social security earnings of the railroad employee or his spouse (see paragraph g above) or the 100% overall minimum provision may come into effect (see paragraph d above).

(6) Persons who have completed 10 years of railroad retirement service but who are not eligible for a windfall benefit may obtain a refund of excess social security taxes (assuming a part of the past railroad retirement taxes to be applicable to social security) paid during the years 1951 through 1974 inclusive under the provisions of section 6(d).

i. In general, beneficiaries on the rolls on Dec. 31, 1974, will receive the same amount under the bill that they were receiving under the Railroad Retirement Act of 1937. Survivors, however, will be guaranteed a total benefit of at least 130% of the amount payable under social security law based on the employee's combined earnings. At present, the guarantee is 110% of that amount.

j. Beneficiaries on the rolls on Dec. 31, 1974, who are eligible for a supplemental annuity under the 1937 Act will receive the supplemental annuity according to the $45 to $70 benefit schedule of the 1937 Act. Contributions for supplemental annuities will be made on a pay-asyou-go basis in amounts sufficient to pay benefits at the 1937 Act levels to all present and future recipients. However, those taxes which are not

71

Insurance and residual lump-sum benefits to survivors are provided. by sections 6(b) and 6(c), respectively.

d. In addition to the provisions outlined above, the bill provides for certain maximums and minimums to be applied to benefits. There is a "100% overall minimum" in that retirement benefits paid under the bill cannot be less than 100% of the social security benefits that would be payable to the employee and his family on the basis of social security law if all of his railroad and social security earnings were covered under social security.

Section 3(f) (1) provides for a maximum to be applied to the sum of employee and spouse benefits. Under static conditions, however, the provision is virtually inoperative. Section 3 (f) (2) provides for an 8-year "guaranty" period. Employees who retire during that period and their spouses cannot receive less than they would have received under the Railroad Retirement Act of 1937 as in effect on Dec. 31, 1974, on the basis of the maximum monthly compensation creditable at that time. It is estimated that the cost of this guaranty provision will be negligible.

e. Cost figures for components of benefits to nonretired employees and future entrants are shown in table 1. The costs shown are costs to the railroad retirement system in excess of the amounts that will be reimbursed to the railroad retirement system through the financial interchange with social security. In other words, the figures reflect the costs for providing the full benefit that the annuitant will receive less the social security benefit computed on the basis of combined railroad retirement and social security earnings.

f. The bill will bring about a number of changes in the operation of the financial interchange. First, financial interchange transfers will be moved to an accrual basis which will accelerate the receipt of funds by the railroad retirement account. Second, there will no longer be any reduction in the financial interchange reimbursement to railroad retirement for "dual benefits" (i.e., social security benefits received by railroad retirement annuitants based on social security earnings). Under the bill, all payments to railroad retirement annuitants under both the Railroad Retirement and Social Security Acts will be made by the Railroad Retirement Board. Consequently, social security will not be making any payments that would result in a deduction from the financial interchange. Third, there is the matter of how windfall benefits will be financed which will be discussed later.

g. In most cases, individuals will not be able to earn credits toward a "dual benefit" based on wages after Dec. 31, 1974. Instead, an imputed social security benefit will be payable based on combined railroad retirement and social security earnings. Credit for social security earnings before Jan. 1, 1975, will be reflected in that benefit and in the windfall benefits provided. In certain instances, the Railroad Retirement Board will pay benefits to a person not eligible for railroad retirement benefits based on social security law and the social securit earnings of an employee or spouse covered under railroad retireme

[graphic]

This may arise in cases where a retired employee has children eligible for a social security benefit, where a divorced wife is involved, and when a widow remarries after the age of 60.

h. Costs and cost reductions arise from other differences between Social security law and the provisions of the bill. From a cost standpoint, the principal areas are the following:

(1) Employees with 30 or more years of service who retire after June 30, 1974, at the age of 60 or above ("60 with 30" employees) will be considered eligible for an unreduced social security benefit based on combined railroad retirement and social security earnings. Spouses of such employees will be entitled to an unreduced social security spouse annuity if they are age 60 or above.

(2) Occupational disability retirees are deemed to be totally and permanently disabled for the purpose of calculating their social security benefits on combined earnings.

(3) There is no 5-month waiting period for disability retirement benefits.

(4) The imputed social security spouse benefit based on the employee's combined earnings is subject to the railroad retirement age reduction factor of 1/180 for each month the spouse is below age 65 rather than to the social security age reduction factor of 1/144.

(5) Social security benefits based on the employee's combined earnings will not be paid to categories of beneficiaries not eligible for railroad retirement benefits under the bill. Such persons, however, may be eligible for benefits based on the social security earnings of the railroad employee or his spouse (see paragraph g above) or the 100% overall minimum provision may come into effect (see paragraph d above).

(6) Persons who have completed 10 years of railroad retirement service but who are not eligible for a windfall benefit may obtain a refund of excess social security taxes (assuming a part of the past railroad retirement taxes to be applicable to social security paid during the years 1951 through 1974 inclusive under the previsions of section 6(d).

i. In general, beneficiaries on the rolls on Dec. 31, 1974, will the same amount under the bill that they were receiving under the Railroad Retirent Act of 1937. Survivors, however, will

[graphic]
[ocr errors]

required to pay supplemental annuity benefits to employees retiring after Dec. 31, 1974, because of the lower benefit schedule of the present bill will be credited to the regular railroad retirement account rather than to the railroad retirement supplemental account.

k. Table 2 presents an actuarial balance sheet for the railroad retirement system under the provisions of the bill. In addition to financing from the funds on hand and income from investments, the financial interchange, and presently legislated taxes, the bill calls for an assumption of the cost of windfall benefits by the Social Security Administration. The cost of windfall benefits are defined in the bill (see paragraph 1 below) is estimated at 4.36% of taxable railroad payrolls or $251 million per year on a level basis. Expressed in terms of present value, the cost is $4.55 billion. On this basis, the actuarial deficiency of the railroad retirement system under static conditions is .24% of payroll or $16 million per year. Those figures may be compared with the actuarial deficiency of the present railroad retirement system which is estimated at 9.06% of payroll or $529 million per year.

1. It appears from correspondence exchanged between the railroad management and labor negotiating parties that serious consideration is being given to the parties jointly proposing certain amendments to the present bill. In particular, one amendment under consideration would change the definition of the windfall amount with respect to employees and spouses on the beneficiary rolls on Dec. 31, 1974, and would markedly lower the cost of windfall benefits to be assumed by social security.

The bill as presently drafted (section 204) defines the windfall benefit for most retired employees who are receiving a dual benefit as the excess of the amount presently received over the sum of (i) an imputed social security benefit on combined railroad retirement and social security earnings and (ii) the railroad retirement benefit under the 1937 Act less the amount in (i) above. Consequently, the sum of (i) and (ii) is the railroad retirement benefit. Because the amount now being received by most such retired employees is the railroad retirement benefit and the dual benefit, the windfall amount is the same as the dual benefit. The situation is similar with respect to spouses on the rolls.

The amendment being contemplated will change the definition of the windfall in such cases to one more consistent with the definition of the windfall for non-retired persons. The windfall for the employees on the rolls who are receiving a dual benefit will be the excess of the amount presently received over the sum of (i) an imputed social security benefit on combined earnings and (ii) the railroad retirement. benefit under the 1937 Act less an imputed social security benefit based on railroad retirement earnings only.

If that amendment were adopted, the cost of windfall dual benefits to be assumed by social security would be 3.64% of taxable payroll or $213 million per year. Expressed in terms of present value, the cost would be $3.80 billion. The actuarial deficiency of the railroad retire

72

« PreviousContinue »