The Parts Of A Railroad Retirement Annuity

Your annuity can be made up of one or two parts, depending on the type of annuity you are receiving. The first part, Tier I, is included in all annuities.

The second part, Tier II, is not included in your annuity computation if you are a remarried widow(er), surviving divorced spouse, divorced mother/father or a parent, if other survivor annuitants are entitled or potentially entitled to a widow(er), surviving divorced spouse or child benefit.

Cost-of-Living Increases

Periodically, you will receive a cost-of-living increase. Your gross Tier I increase will be the same percentage as the social security benefit cost-of-living increase. Your Tier II will generally increase by 32.5 percent of the Tier I percentage increase. An increase may not be payable each year.

Tier I

The Tier I amount is based on the deceased employee's combined railroad retirement and social security credits. The Tier I you will receive is equal to a percentage of the amount that the employee would have received if he or she had retired under the social security system only. The percentage depends on the type of benefit you are receiving and the number of annuitants who are qualified to receive a benefit. If there are fewer than three qualified family members, the percentages are as follows:

If there are three or more qualified family members, an amount called the "family maximum" applies to the Tier I amount. The "family maximum" amount is divided proportionately among the family members to determine the individual annuity Tier I amounts.

The Tier I portion of the annuity is reduced for:

• the entire amount of any social security benefit which you are entitled to receive on your own account or on the account of another person;
• a portion of any railroad retirement annuity based on your own railroad industry work;
• two-thirds of the amount of any public service pension based on your earnings if you are receiving a widow(er) type benefit and you do not meet one of the exceptions given in the section "Public Service Pension."

If you are not entitled to a Tier II, you cannot receive an annuity if the amount of any social security benefit you receive is greater than the amount of the maximum Tier I which could be paid on the employee's account.

Tier II

Widow(er)s

December 2001 legislation established an "initial minimum amount" which yields, in effect, a widow(er)'s tier II benefit equal to the tier II benefit the employee would have received at the time of the award of the widow(er)'s annuity, minus any applicable age reduction. It does this by adding a "guaranty amount," initially set at 50% of the employee's tier II, to the 100% tier I and 50% tier II benefits provided under prior law. The "initial minimum amount" is computed as if it applied on the widow(er)'s annuity beginning date and is not increased for cost-of-living adjustments.

This "guaranty amount" is reduced each year by the dollar amount of the cost-of-living increases payable in both the tier I and tier II benefits provided under prior law. Consequently, the widow(e)'s net benefit payment will not increase until the annuity, as computed under prior law, exceeds the annuity computed under the intial miniumum amount formula.

The widow(er)s' guaranty provision applies to all widow(er)s entitled to a tier II effective February 1, 2002. If the annuity beginning date is before February 1, 2002 the increase due to the "intial minimum amount" maybe zero, because of previous cost-of-living adjustments.

If a widow(er) is also a railroad employee annuitant and both the widow(er) and the deceased employee started railroad emplyment after 1974, only the railroad retirement employee annuity or the survivor annuity, whichever is larger, is, in effect, payable to the widow(er) unless the smaller annuity is chosen.

Other Survivors

Each child received 15% of the deceased employee's tier II amount, and each surviving parent received 35%. The minimum total tier II amount payable to a family is 35% of the employee's tier II amount, and the maximum, 130%.

A tier II benefit is not payable for a surviving divorced spouse or a remarried widow(er). A tier II benefit is not payable to surviving parents if other family members may receive benefits or if the parent has remarried.

Social Security Benefits

If you are qualified to receive an old age, survivor, or disability insurance benefit from the Social Security Administration (SSA) at the time that you file your railroad retirement application, and you indicate on the application that you want to use your application to protect your filing date for a social security benefit, SSA will get in touch with you and advise you on how to file a social security application.

If you become qualified to receive any social security benefits after you file your application for an annuity with the Railroad Retirement Board (RRB), you must contact the SSA office directly to file an application for social security benefits. In either case, SSA will decide if you are entitled to receive benefits and will compute the amount of the benefits which can be paid. However, the actual payment will be made by the RRB and will be combined with your regular monthly railroad retirement payment.

The section "Tier I," explained how your annuity must be adjusted for any social security benefit which you are entitled to receive. In most cases, the total amount which will be paid to you each month by both the RRB and SSA will not change if you file for social security benefits.

Filing for a social security benefit will usually increase the total benefits payable to you only if all of the following situations apply:

• Your social security benefit is larger than the Tier I part of your railroad retirement annuity; and
• You do not expect to earn more than the annual earnings exempt amount.

It is important to notify the RRB as soon as you file a social security application for monthly benefits. If you do not notify the RRB, a railroad retirement annuity overpayment may result.

Public Service Pension

As explained in the section "Tier I," a widow(er) type annuity must be adjusted for any public service pension payment, based on your earnings, that you receive.

A public service pension is the retirement pay you receive because you worked for the Federal Government of the United States, a state government or any political subdivision of a state, such as a city, county, town, township, village, school or sanitation district. The definition of "state" includes the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam and American Samoa. Work for the government of a foreign country is not included.

The public service pension may either be monthly checks or a lump-sum payment. It may be administered by the government agency or a private insurance company. The following are not considered to be public service pension payments:

• Social security benefits.
• Railroad retirement annuities.
• Veteran affairs benefits.
• Worker's compensation.
• Black lung benefits.

In addition, your annuity will not be adjusted for a public service pension if:

• you were eligible for or entitled to a public service pension before July 1, 1983; a special exemption may apply to you. Contact an RRB field office if this situation applies to you.
• you worked for state or local government:
  • Your application for benefits was filed after March 2004 and your date last worked is later than June 30, 2004 and FICA taxes were deducted from your public service wages for 60 months. Coverage must include the last month of employment.
  • Your application for benefits was filed before March 2004 or your date last worked is before July 1, 2004, FICA taxes must have been deducted on the last day of your public service employment.
• you are a federal employee and you elected coverage under the Federal Employee Retirement System (FERS). If FERS coverage was elected in 1998, you must have worked for a minimum of five years under FERS.

If you are receiving a public service pension when you file an application, you must report, to the RRB, any changes in the amount of the public service pension payments.

Widow(er)'s Rate Is Never Less Than Previous Rate

If you are currently receiving a retirement Spouse annuity, the total of your Widow(er)'s annuity will be compared to the amount you are now receiving. If the calculation of your Widow(er)'s annuity results in an amount that is less than what you are currently receiving as a spouse, your Widow(er)'s annuity will be increased to equal that amount. Your Widow(er)'s annuity amount will never be less than the annuity you were receiving in the month before the employee's death.

This guarantee does not apply to a Surviving Divorced Spouse annuity.