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the employee is entitled to a dual benefit under subsection (h) (1) or (h) (2) of section 3. As a result of this latter assumption, the amount computed will not be reduced by reason of the employee's presumed entitlement to a railroad retirement supplemental annuity. However, if the employee is entitled to a dual benefit under subsection (h), the annuity amount computed under the 1937 Act will be reduced in accordance with the so-called "offset provisions” contained in that Act. Briefly stated, these offset provisions required that, where an employee was entitled to both railroad retirement and social secu. rity benefits, the railroad retirement annuity increases provided by the 1966, 1968, and 1970 railroad retirement amendments be reduced by the approximate amount of the increases which the employee received in his social security benefit as a result of the social security amendments of 1965, 1967, and 1969. The social security benefit used in determining the amount of the reductions will be the social security benefit based on the employee's wages and self-employment income under the Social Security Act prior to (A) January 1, 1975, if the employee's dual benefit is determined under section 3(h) (1) or (B) prior to the January 1 of the year following the year in which the employee last engaged in railroad service if his dual benefit is determined under section 3(h) (2). The provisions of the next to the last sentence of subdivision (1) give the Railroad Retirement Board the authority to approximate the reduction required by the offset provisions in a particular case.

In addition to the above-discussed computation, subdivision (1) provides for the computation of a so-called imputed social security benefit which would have been payable to the employee under the Social Security Act as in effect prior to January 1, 1975, if his railroad service after December 31, 1936, and before January 1, 1975, had been covered under that Act. For purposes of this computation it is assumed that the employee met the requirements for an unreduced social security benefit based on age and that he had no wages or selfemployment income under that Act other than wages derived from the railroad service in question; thus, the imputed social security benefit will be based on railroad service only. In computing this imputed social security benefit, the last sentence of subdivision (1) provides that 18 computation years will be used in computing an employee's average monthly wage. As a result of this provision, the computation years used will be the same for all employees, regardless of their actual age as of January 1, 1975, and, therefore, the imputed social security benefit will not differ because of age for employees with identical earnings and service histories as of that date.

The amount of the annuity component provided by subdivision (1) of subsection (b) is determined by subtracting the above-discussed imputed social security benefit from the annuity computed under the provisions of the 1937 Act. The employee will, of course, be entitled to a social security level component in accordance with subsection (a) of section 3, which will be based on his railroad service, as well as his non railroad service, performed both before and after January 1, 1975, Thus, if the employee's imputed social security benefit based on railroad service before that date were not subtracted from his annuity as computed under the 1937 Act he would, in effect, receive a double benefit based on that vice.

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The following example will illustrate both the manner in which the annuity component will be computed under subdivision (1) of section 3(b) and also the basis for the subtraction of an imputed Surial security benefit: Assume that an employee attains age 65 on December 31, 1974, and as of that date has been credited with 30 years of service and maximum compensation under the Railroad Retirement Act. His annuity as computed under the present 1937 Act without any reduction for receipt of a supplemental annuity would be $521. His imputed social security benefit computed on the basis of his railroad service alone would be $320 (this railroad service will, of course, be included in the computation of his social security level component under subsection (a), along with any nonrailroad employment which he might have performed under the Social Security Act, and, therefore, his annuity amount under subsection (a) will be at least $320 before any reduction due to actual receipt of a social security benefit). Subtracting this $320 from the $521 amount computed under the 1937 Act, leaves $201 as the amount of that portion of his annuity as is provided by subdivision (1) of subsection (b).

Subdivision (2) of subsection (b) provides that the annuity component computed under subdivision (1) will be increased by 65 percent of the increase in the unadjusted Consumer Price Index during the period from September 30, 1976, through the earlier of (A) September 30 of the year preceding the year in which the employee's annuity begins to accrue or (B) September 30, 1980. The increase in the unadjusted Consumer Price Index will be determined by comparing such Index for September, 1976, with such Index for September of the year preceding the year in which the employee's annuity began or for September, 1980, whichever is applicable in a given case.

The third component of the employee's annuity, which is provided by subsection (c) of section 3, also relates to service performed prior to January 1, 1975, but is provided only for employees who have also engaged in railroad service after December 31, 1974. The amount of this component is $1.50 for each of the employee's first 10 years of service prior to January 1, 1975, plus $1.00 for each year of the employee's service prior to that date in excess of 10 years of service.

Subsection (d) provides the fourth component of the employee's annuity and relates solely to service performed subsequent to December 31, 1974. Subdivision (1) of this subsection provides an annuity amount equal to (A) 1,2 percent of the employee's average monthly compensation for his years of service after 1974 times his years of service after 1974 plus (B) $4.00 for each of the employee's years of service after 1974. Subdivision (2) provides cost-of-living adjustments in the $4 per year of service portion of the annuity component computed under subdivision (1). The amount determined under subdivision (1) is increased by 65 percent of the increase in the unadjusted Consumer Price Index 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. Subdivision (3) provides for an increase in the portion of the annuity computed on the basis of the employee's average monthly compensation of 65 percent of the aforementioned increase in the Consumer Price Index, less the

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amount by which such amount under subdivision (1) was greater than it would have been if the limitation on creditable compensation which was in effect in the month from which the first increase in the Consumer Price Index was measured (September 1976) had remained in effect. The complexity of the language required to attain this result, contained in the introduced bill, has led the committee to restate it in terms of mathematical formulae. As under section 3(b) (2), which provides a cost-of-living adjustment in a portion of the annuity based on service prior to January 1, 1975, the increase in the unadjusted Consumer Price Index will be determined by comparing such Index for September, 1976, with such Index for September of the year preceding the year in which the employee's annuity began or for September, 1980, whichever is applicable.

The amount of an employee's supplemental annuity-which amount is the fifth possible component of an employee's total benefit-under section 2(b) of the 1974 Act is provided by subsection (e) of section 3. Although the eligibility requirements for a supplemental annuity are generally the same as those contained in section 3(i) of the 1937 Act, the amounts of such annuities differ. Section 3(j) of the 1937 Act provides a supplemental annuity of $45 plus an additional $5 for each year of service in excess of 25, up to a maximum annuity of $70 (for 30 or more years of service). Section 3(e) of the 1974 Act provides a supplemental annuity of $23 plus an additional $4 for each year of service in excess of 25, up to a maximum of $43 (for 30 or more years of service). Under the 1937 Act, however, an employee's regular railroad retirement annuity was smaller if he received a supplemental annuity, whereas under the 1974 Act an employee's receipt of a supplemental annuity will not affect the amount of his regular annuity. The net result will be the same for the 1974 Act as it is in the 1937 Act.

Subsection (f) of section 3 sets forth the maximum and minimum provisions applicable to employee annuities. Under subdivision (1), if the total amount of the employee's annuity as computed under subsection (a) through (d) of section 3 plus his supplemental annuity in the amount provided under subsection (e) would, before any reduction on account of age or receipt of a social security benefit and disregarding any increases in the employee's annuity which become effective after the date his annuity begins to accrue, exceed an amount equal to the sum of (A) 100 percent of his "final average monthly compensation” up to 12 of the maximum creditable monthly compensation during the year in which his annuity begins plus (B) 80 percent of his "final average monthly compensation" in excess of 12 of such maximum creditable monthly compensation, his supplemental annuity first and then, if necessary, his annuity as computed under subsections (b) through (d) of section 3 will be reduced until the total of the annuity and supplemental annuity amounts equals the sum determined under clauses (A) and (B) above or until the supplemental annuity and the annuity amounts determined under subsections (b) through (d) are reduced to zero, whichever occurs first. As can be seen, this maximum provision does not operate to reduce the social security level component of an employee's annuity as determined in accordance with the provisions of section 3(a).

Furthermore, the proviso contained in subdivision (1) of section 3(f) assures that any reductions required by that subdivision will not

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operate to reduce an employee's total monthly annuity and supplemental annuity below $1,200. For purposes of computing the maximum under this subdivision, the "final average monthly compensation” for a particular employee is obtained by dividing 24 into the total compensation (subject to the limitations prescribed in section 3() on the amount of compensation which may be considered for a particular month) received by the employee during his two calendar years of highest compensation, consecutive or otherwise, during the ten-year period ending with December 31 of the year in which his annuity begins to accrue. For this purpose, wages and self-employment income creditable under the Social Security Act are considered to be compensation, along with compensation creditable under the Railroad Retirement Act.

Subdivision (2) of subsection (f) guarantees that, in cases where an employce's annuity under the new Act began to accrue before January 1, 1983, the total of the annuities (other than amounts payable under subsection (h)) and supplemental annuity payable to the employee and his spouse for any month under the new Act (before any reduction due to receipt of social security benefits and before any reduction pursuant to the earnings limitations provisions of section 2(f) of the new Act) cannot be less than the total amount that would have been payable to the employee and his spouse for that month under the provisions of the Railroad Retirement Act of 1937 as in effect on December 31, 1974, on the basis of the maximum monthly compensation creditable at that time. In computing benefit amounts under the 1937 Act, the Railroad Retirement Board will have the authority to approximate the reductions required by the offset provisions contained in that Act.

These offset provisions are discussed in the explanation of section 3(b). Also, increases in amounts computed under the so-called social security minimum guaranty provision contained in section 3(e) of the 1937 Act (which amounts are automatically increased whenever social security benefits are increased) which become effective after December 31, 1974, are disregarded in computing the amount guaranteed pursuant to the provisions of section 3(f) (2) of the new Act. Thus, the guaranty amount derived from the provisions of the 1937 Act is confined to the amount that would have been payable under that Act as of December 31, 1974, except that additional service and earnings would be taken into account up to the date that the employee's annuity under the new Act began to accrue.

Subdivision (3) of subsection (f) contains a provision similar, in pertinent respects, to the so-called social security minimum guaranty provision contained in section 3(e) of the 1937 Act. Generally speaking, this provision assures that the total monthly benefits to a retired employee and his spouse will not be less than 100 percent (under the 1937 Act the guaranty was 110 percent) of the amount, or the amount additional to that actually paid under the Social Security Act, that would have been payable to the employee's family under the Social Security Act, on the basis of his combined railroad and non railroad earnings, if his railroad earnings after December 31. 1936, had been covered under the Social Security Act. Any exceptions to this general statement (see clauses (i) and (ii) of subdivision (3)) are identical to exceptions contained in the comparable provision of the 1937 Act. In view of the nature of the provisions of the new Act concerning the computation of survivor annuities, it is no longer necessary to cover survivors under the guaranty provision in question.

Subsection (g) of section 3 provides for cost-of-living adjustments in the annuity components determined under subsections (b) and (d) for employees whose annuities had begun to accrue on or before the effective date of a particular increase. The effective dates of these increases will be June 1, 1977, June 1, 1978, June 1, 1979, and June 1, 1980, the dates on which social security cost-of-living increases may become effective. Each such increase will be by 32.5 percent of the increase in the unadjusted Consumer Price Index which is used, or which would have been used had there been no general benefit increase under the Social Security Act, in increasing social security benefits for the years in question pursuant to the automatic cost-of-living pruvisions of section 215(i) of the Social Security Act. Unlike section 215(i) of the Social Security Act, however, section 3(g) of the new Railroad Retirement Act will provide a cost-of-living adjustment for a particular year even if the increase in the unadjusted Consumer Price Index on which the adjustment is based is less than 3 percent.

The dual benefits for employees who had ten years of service under the 1937 Act prior to the effective date of the new Act, January 1, 1975, and who were also fully insured under the Social Security Act on December 31, 1974, or, in certain cases, as of the end of the year prior to 1974 in which the employee last engaged in railroad service, are provided by subsection (h) of section 3. Subdivision (1) provides that if the employee (A) had engaged in railroad service during 1974, or (B) had a current connection with the railroad industry either on December 31, 1974, or at the time his annuity began to accrue, or (C) had 25 years of service prior to January 1, 1975, he will be entitled to a dual benefit if he had ten years of service on December 31, 1974, and was permanently insured under the Social Security Act on that date.

The amount of the dual benefit for such an employee will be equal to the difference between (D) the sum of (i) a social security benefit based on the employee's railroad earnings after December 31, 1936, and before January 1, 1975, and (ii) a social security benefit based on his social security earnings prior to January 1, 1975, minus (E) a social security benefit based on his combined railroad and social security earnings after December 31, 1936, and before January 1, 1975. For purposes of this subdivision and subdivision (2), all social security benefits will be in the amount that the employee would have received when he attained age 65, or, if the employee attained age 65 prior to January 1, 1975, the amount which he would have received for the month of January 1975, under the provisions of the Social Security Act as in effect on December 31, 1974.

Subdivision (2) provides a dual benefit for employees who did not engage in railroad service during 1974, did not have a current connection with the railroad industry either on December 31, 1974, or at the time their annuities began to accrue, and did not have 25 years of service prior to January 1, 1975, but did have ten years of service prior to January 1, 1975, and were permanently insured under the Social Security Act at the end of the year prior to 1975 in which they last engaged in railroad service. The dual benefit for such employees will

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