COMMITTEE ON LABOR AND PUBLIC WELFARE HARRISON A. WILLIAMS, New Jersey, Chairman JENNINGS RANDOLPH, West Virginia JACOB K. JAVITS, New York J. GLENN BEALL JR., Maryland Mr. HATHAWAY, from the Committee on Labor and Public Welfare, submitted the following REPORT together with SUPPLEMENTAL VIEWS [To accompany H.R. 15301] The Committee on Labor and Public Welfare, to whom was referred the bill (H.R. 15301) to amend the Railroad Retirement Act of 1937 to revise the retirement system for employees of employers covered thereunder, and for other purposes, having considered the same, report favorably thereon with amendments and recommend that the bill as amended do pass. PRINCIPAL PURPOSE OF THE BILL The bill provides for a complete restructuring of the Railroad Retirement Act of 1937, and will place it on a sound financial basis. Railroad Retirement benefits will hereafter consist of two components the first tier will be a benefit computed under the Social Security Act, counting all railroad employment as Social Security covered employment, and combining that service with all Social Security covered employment; and a second tier of benefits based on railroad service alone computed under the Railroad Retirement Act. This new technique of computing benefits will bring about more adequate coordination between the Railroad Retirement Act and the Social Security Act, thereby preventing future excess costs to the 2 Railroad Retirement System which threaten the existing system with bankruptcy. Persons in receipt of both Railroad Retirement and Social Security benefits as of December 31, 1974 will continue to receive benefits under both systems without any reduction in those benefits. Persons who already have vested rights under both the Railroad Retirement and the Social Security systems will in the future be permitted to receive benefits computed under both systems just as is true under existing law. The excess costs of paying benefits to persons described in this paragraph will be met through appropriations estimated at $285 million per year on a level-cost basis through the year 2000. Persons not yet retired (other than those with vested rights) will have their benefits computed under the new "two tier" system described in the first paragraph above. JUSTIFICATION FOR APPROPRIATIONS The Railroad Retirement System today has a serious actuarial deficit amounting to over 9 percent of taxable payroll. 7.72 percent of this deficit arises because of inadequate coordination between the Railroad Retirement Act and the Social Security Act. In 1951 the Congress provided for a system of financial interchange, under which the Railroad Retirement System was reinsured with the Social Security System. Under this program, the Railroad Retirement System pays to the Social Security System each year an amount equal to the taxes which would have been paid by all railroad employees, and by the railroads, if railroad service were service covered under the Social Security Act. The Social Security System, on the other hand, transfers to the Railroad Retirement System each year an amount equal to the total of Social Security benefits which would have been paid to all retired railroad employees, their dependents, and survivors if all railroad service of the employees since 1936 had been covered under the Social Security Act. The net result of the financial interchange program has been a transfer over the years of $8.2 billion from the Social Security System to the Railroad Retirement System. The Social Security Act prohibits payment of multiple benefits to any individual under that Act. For this reason, whenever an individual receiving Railroad Retirement benefits also qualifies for Social Security benefits, the amounts paid to the Railroad Retirement system under financial interchange on account of that individual are reduced by the total of the Social Security benefits which that individual receives. The lost reirrsement to the Railroad Retirement System over the year it is estima of this situation is in excess of $4 billion, and sent value of the future lost reimbursement 3 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% billion. A principal factor leading to this $82 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. 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. |