Page images
PDF
EPUB

which will arise out of the provisions of the bill continuing payment of both Railroad Retirement and Social Security benefits to certain individuals is an additional $41,2 billion.

A principal factor leading to this $812 billion loss to the Railroad Retirement Account ($4 billion in the past and $412 billion in the future) arises out of the manner in which benefits are computed under the Social Security Act. That Act grants proportionately greater benefits to persons with relatively short periods of covered service and relatively low wages. In computing the amounts to be transferred to the Railroad Retirement System under financial interchange arising out of the service of any individual employee, the amounts to be transferred are computed on the basis of both his railroad employment and his non-railroad employment. When that individual then begins to draw benefits from the Social Security System based upon his nonrailroad employment, the amounts by which the financial interchange reimbursement are reduced are disproportionate to the individual's total employment, railroad and nonrailroad. The following chart will illustrate this situation.

FINANCING DUAL BENEFITS

RAILROAD EMPLOYEE WITH

35 YEARS OF SERVICE NO SOCIAL SECURITY EMPLOYMENT

RAILROAD EMPLOYEE WITH

35 YEARS OF SERVICE
DURING 10 YEARS OF WHICH HE ALSO
HAD SOCIAL SECURITY EMPLOYMENT

INCOME TO SOCIAL SECURITY
35 years of ss taxes

45 years of SS employer foxes
35 years of SS employee taxes

[merged small][merged small][merged small][merged small][merged small][ocr errors][ocr errors][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][ocr errors]

COST OF DUAL BENEFIT TO RAILROAD RETIREMENT FUND ? $200

1 Certain offsets are made against RR retirement benefits where the Individual is entitled to Social Security benefits.

* $250 reduction in financial Interchange less $50 reduction described in footnote 1.

H.R. 15301 eliminates this situation for the future by providing for the computation of railroad retirement Tier I benefits under the Social Security formula based on both railroad and non-railroad service.

The question before the Committee was who should bear the cost of continuing these benefits to persons already retired and those with vested rights protected under the bill, this cost estimated to represent 3.64 percent of table payroll.

The Office of Management and Budget has suggested that this cost can be met by simply cutting benefits under the bill. The Committee rejected this suggestion for three reasons: First, cutting off the benefits of those already receiving or legally entitled to them would clearly be inequitable. These individuals have a right to receive those benefits the law has led them to rely upon or expect.

Secondly, more than half of the long range cost of putting the overall system in actuarial balance under this bill is accomplished through significant reductions in benefits payable to future retirees. These reductions include the prohibition of future dual benefits as well as

Finally, changes in the benefit formula since accruial of future dual benefit rights is prohibited under the bill, it seems unfair to assign this cost to present employees who will not be able to collect such benefits.

It should be noted that these reductions in future payments are offset in part by three liberalizations in benefits designed to make fully effective the early retirement provision which was enacted last year. The three liberalizations which the bill would provide have a level cost of 3.1 percent of taxable payroll and would provide :

(A) People who retire at age 60 with 30 years of service could receive supplemental annuities at age 60, rather than at age 65;

(B) The spouse of an individual who retires at age 60 vith 30 years of service could qualify for a spouse's annuity at age 60, rather than at age 65; and

(C) The benefits generally payable to survivors (most widows) would be increased from 110% of the comparable social security

benefit to 130% of the comparable benefit. On the other hand, the railroads had no part in the creation of the current situation. The lost reimbursement to the Railroad Retirement System arising out of individuals becoming entitled to Social Security benefits arises out of non-railroad employment performed by these individuals employment which has not benefitted the railroad industry in any fashion. A further factor leading to lost reimbursement arises in part out of provisions contained in the Social Security Act, and the formula for the computation of benefits thereunder-again matters over which the railroad industry has no control. With respect to legislation enacted repealing restrictions on dual benefits (discussed hereafter), the railroads have consistently opposed such legislation.

The Committee feels that it would therefore be unfair to the rail road industry to saddle the carriers with the costs of phasing out dua benefits.

But these costs must be met-by someone. The Committee has there fore authorized appropriations to meet the costs for the future o phasing out dual benefits. A precedent exists for this approach. Con

[graphic]
[ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][ocr errors][merged small][ocr errors][ocr errors][ocr errors][ocr errors]

4

H.R. 15301 eliminates this situation for the future by providing for the computation of railroad retirement Tier I benefits under the Social Security formula based on both railroad and non-railroad service.

The question before the Committee was who should bear the cost of continuing these benefits to persons already retired and those with vested rights protected under the bill, this cost estimated to represent 3.64 percent of table payroll.

The Office of Management and Budget has suggested that this cost can be met by simply cutting benefits under the bill. The Committee rejected this suggestion for three reasons: First, cutting off the benefits of those already receiving or legally entitled to them would clearly be inequitable. These individuals have a right to receive those benefits the law has led them to rely upon or expect.

Secondly, more than half of the long range cost of putting the overall system in actuarial balance under this bill is accomplished through significant reductions in benefits payable to future retirees. These reductions include the prohibition of future dual benefits as well as

Finally, changes in the benefit formula since accrnial of future dual benefit rights is prohibited under the bill, it seems unfair to assign this cost to present employees who will not be able to collect such benefits.

It should be noted that these reductions in future payments are offset in part by three liberalizations in benefits designed to make fully effective the early retirement provision which was enacted last vear. The three liberalizations which the bill would provide have a level cost of 3,1 percent of taxable payroll and would provide:

(A) People who retire at age 60 with 30 years of service could receive supplemental annuities at age 60, rather than at age 65;

(B) The sponse of an individnal who retires at age 60 vith 30 years of service could qualify for a spouse's annuity at age 60, rather than at age 65; and

(C) The benefits generally payable to survivors (most widows) would be increased from 110% of the comparable social security

benefit to 130% of the comparable benefit. On the other hand, the railroads had no part in the creation of the current situation. The lost reimbursement to the Railroad Retirement System arising out of individuals becoming entitled to Social Security benefits arises out of non-railroad employment performed by these individuals-employment which has not benefitted the railrond industry in any fashion. A further factor leading to lost reimbursement arises in part out of provisions contained in the Social Security Act, and the formula for the computation of benefits thereunder-again matters over which the railroad industry has no control. With respect to legislation enacted repealing restrictions on dual benefits (discussed hereafter), the railroads have consistently opposed such legislation.

The Committee feels that it would therefore be unfair to the rail road industry to saddle the carriers with the costs of phasing out dua benefits.

But these costs must be met~by someone. The Committee has there fore authorized appropriations to meet the costs for the future o phasing out dual benefits. A precedent exists for this approach. Con

gress provided in 1940 that military service would be creditable under the Social Security Act, without any contributions being made by the serviceman. A similar provision was made for the Railroad Retirement Act. Appropriations were authorized to meet the costs of these wage credits, provided by Congressional action, and each year since 1956, appropriations have been made for that purpose, and such appropriations continue to be made.

The deficit in the Railroad Retirement system has occurred in part because of Congressional action (1) liberalizing benefit eligibility under the Social Security system and (2) repealing restrictions upon dual benefits contained in the Railroad Retirement Act. Following the precedent set with respect to military service free wage credits, the committee proposes that appropriations be made to cover the costs of phasing out dual benefits which have been provided by Congressional action.

Current estimates are that appropriations of $285 million a year on a level cost basis through the year 2000 will be sufficient to meet these costs.

The Committee realizes that this method of financing the costs of phasing out dual benefits will not be a popular one; however, the Committee is not aware of an alternative method which would be fairer than the method selected.

THE EFFECT OF THE PROPOSED ACT UPON THE FINANCIAL STATUS OF THE RAILROAD RETIREMENT SYSTEM

[merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][ocr errors][merged small][merged small][merged small][ocr errors][ocr errors][ocr errors][ocr errors]

This figure represents costs calculated into perpetuity. The actual figure authorized by the bill would be $285,000,000 per year for 25 years,

ECONOMIC IMPACT OF THE BILL

Whether changes in a program like the Railroad Retirement system can be expected to have an inflationary effect in any period depends on an evaluation of a rather sophisticated economic analysis. In the end the changes will be considered inflationary if they contribute to a situation which favors generally rising prices. If present law were to be continued, railroad taxes would need to be increased (with consequent inc: eases in costs to users of rail seryices) to meet the costs of the program. The committee bill, on the otherhand, is financed without increasing railroad taxes and in the

« PreviousContinue »