The Railroad Retirement And Survivors' Improvement Act Of 2001
Railroad Retirement Benefit And Financing Changes
President Bush signed the Railroad Retirement and Survivors' Improvement Act of 2001, Public Law 107-90, into law
on December 21, 2001.
The legislation liberalizes early retirement benefits for 30-year employees,
eliminates a cap on monthly retirement and disability benefits, lowers the
minimum service requirement from 10 years to 5 years of service if performed
after 1995, and provides increased benefits for some widow(er)s. The financing
sections of the new law provide for the investment of railroad retirement funds
in non-governmental assets, adjustments in the payroll tax rates paid by
employers and employees, and the repeal of a supplemental annuity work-hour tax.
The following is a summary of the changes in railroad retirement benefits and
financing provided by the new law, which was based on joint recommendations to
Congress negotiated by a coalition of rail labor organizations and rail freight
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The new law amends the Railroad Retirement Act by eliminating the early
retirement reduction applied to the annuities of 30-year employees retiring
between the ages of 60 and 62 if their annuities begin January 1, 2002, or
later. The spouses of such employees would also be eligible for full annuities
at age 60. Full 60/30 benefits have not been payable to 30-year employees
retiring before age 62 since 1983 legislation reduced such early retirement
This provision is not retroactive and not applicable to 30-year employees who
retired on the basis of age and service prior to January 1, 2002, or to their
spouses, even if their spouses retire after 2001. However, if a disability
annuitant is age 60 and has 30 years of service, his or her spouse can now
receive an unreduced annuity as early as age 60 if the spouse's annuity
beginning date is January 1, 2002, or later.
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The new law eliminates, effective January 1, 2002, a maximum on the amount of
combined monthly employee and spouse benefit payments which had been intended to
prevent benefits from exceeding an amount based on an employee's earnings
immediately prior to retirement. This maximum provision had the unintended
effect of reducing benefits for former employees with no earnings, or low
earnings, in the 10-year period prior to retirement, and for long-service
employees with moderate earnings.
While not retroactive, the amendment prospectively increases benefits,
effective January 1, 2002, for almost 2,600 employee and 12,000 spouse
annuitants on the Board's rolls whose benefits were reduced by the maximum
provision prior to 2002.
In 2001, the average monthly employee benefit reduction under the maximum
provision was $164, and the average spouse reduction was $78. The removal of any
benefit reductions applied to affected annuitants should be completed by June
2002. Such annuitants can expect to receive accrual payments in late May 2002
retroactive to January, and increased regular monthly payments reflecting their
new rates beginning with the monthly payment due on June 1, 2002. Notices are
being sent by the Board to all affected annuitants in January 2002 advising them accordingly.
Notices are also being sent to employees whose spouses may have been
previously advised by the Board to defer filing for spouse benefits because of
the adverse effects of the maximum provision, as their spouses would now want to
consider filing for railroad retirement benefits.
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Basic Service Requirement
The new law lowers the minimum eligibility requirement for regular railroad
retirement annuities from 10 years (120 months) of creditable railroad service
to five years (60 months) of creditable railroad service for those with five
years of service rendered after 1995. Benefits payable on the basis of this
provision are not retroactive and are not payable earlier than January 1, 2002.
Also, for those with less than 10 years of service, additional earnings
credits acquired under social security coverage would be required for a tier I
benefit. A tier II benefit would, however, be payable even if the employee never
worked under social security coverage. Additional requirements apply in
disability cases. In addition, a deceased employee with five years of service
after 1995 must still have had a "current connection" with the rail industry in
order for survivor annuities to be payable by the Board under this provision,
rather than the Social Security Administration.
Anyone with five years of service performed after 1995, who was previously
denied benefits because of the 10-year service requirement, will want to contact
a Board office.
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The new law establishes an "initial minimum amount" which is based on the
two-tier annuity amount that would have been payable to the railroad employee at
the time the widow(er)'s annuity is awarded. The initial minimum amount is
computed with a widow(er)'s tier II amount equal to 100 percent of the
employee's tier II amount. Under prior law, the widow(er)'s tier II amount was
equal to 50 percent of the employee's tier II amount; only the tier I amount
equaled 100 percent. Widow(er)s' annuities computed on the basis of the new
initial minimum amount will not be adjusted for annual cost-of-living increases
until the annuity amount is exceeded by the annuity amount the widow(er) would
have been paid under prior law, with all interim cost-of-living increases
This provision is effective February 1, 2002, and is not payable
retroactively. The Railroad Retirement Board estimates that about 20 to 25
percent of the widow(er)s on its rolls in 2001 will see some increase in their
This provision applies to widow(er)s on the rolls before the effective date
only if the annuity the widow(er) is currently receiving is less than she or he
would have received had the new law been in effect on the date the widow(er)'s
annuity began. Most widow(er)s' annuities awarded before October 1986 will not
be increased. Many of the widow(er)s' annuities currently being paid are already
higher than the annuity that would be payable under the new law because of
previous cost-of-living adjustments.
Widow(er)s affected by this change can expect to receive any accrual
payments, retroactive to February, in late April 2002, and increased regular
monthly payments reflecting their new rates beginning with the payment they
receive on May 1, 2002. Letters are being sent to affected widow(er)s on the
Board's rolls, advising them as to whether they will receive an increase. As a
result, widow(er)s do not need to take any action or contact the Board.
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The new law provides for the transfer of railroad retirement funds from the
Railroad Retirement Accounts to a new National Railroad Retirement Investment
Trust, whose Board of seven trustees is empowered to invest Trust assets in
non-governmental assets, such as equities and debt, as well as in governmental
The Trust will not be treated as an agency or instrumentality of the Federal
Government. Its Board of Trustees will be comprised of seven members: three
members selected by rail labor to represent the interests of labor; three
members likewise selected by rail management to represent management interests;
and one independent member selected by a majority of the other six members. The
new law also provides that if the parties involved cannot agree on the selection
of Trustees within 60 days of the law's enactment date, an impartial umpire
shall, at the petition of a party to the dispute, be appointed by the District
Court of the United States for the District of Columbia. The Trustees will be
appointed only from among persons who have experience and expertise in the
management of financial investments and pension plans. The Trustees will be
subject to reporting and fiduciary standards similar to those under the Employee
Retirement Income Security Act.
The new law also allows for railroad retirement benefit payments in the
future to be issued by a qualified non-governmental financial institution,
rather than the Treasury Department. The selection of the financial institution
would be made by the Railroad Retirement Board, after consulting with the Board
of Trustees and the Secretary of the Treasury. Railroad retirement payments will
continue to be processed through the U.S. Treasury in the meantime.
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Effect on Payroll Tax Rates
The new law reduces the tier II tax rates on rail employers, including rail
labor unions, in calendar years 2002 and 2003, and beginning with 2004 provides
automatic adjustments in the tier II tax rates for both employers and employees.
It also repeals the supplemental annuity work-hour tax rate paid by employers,
beginning with calendar year 2002.
The tier II tax rate on rail employers and rail labor organizations is
reduced from 16.10 percent to 15.60 percent in 2002 and to 14.20 percent in
2003, but the tier II earnings base is not changed; and for 2002, that amount
remains at $63,000. The tier II tax rate for rail employee representatives is
14.75 percent in calendar year 2002 and 14.20 percent in 2003. An employee
representative is a labor official of a non-covered labor organization who represents employees covered under the
Acts administered by the Railroad Retirement Board.
While there is no change in the tier II tax rate of 4.90 percent on employees
in the years 2002 and 2003, beginning with the taxes payable for calendar year
2004, tier II taxes on both employers and employees will be based on the ratio
of certain asset balances to the sum of benefits and administrative expenses
(the average account benefits ratio). Depending on the average account benefits
ratio, tier II taxes for employers will range between 8.20 percent and 22.10
percent, while the tier II tax rate for employees will be between 0 percent and 4.90 percent.
The new law does not affect the 7.65 percent tier I social security
equivalent tax rate. The tier I tax on employees and employers remains the same
as for social security covered employees and employers, and is divided into 6.20
percent for retirement and 1.45 percent for Medicare hospital insurance. The
maximum amount of an employee's earnings subject to the 6.20 percent rate is
$84,900 in 2002; the Medicare hospital insurance tax is applied to all earnings.
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Other Revenue Provisions
While supplemental railroad retirement annuities provided by the Railroad
Retirement Act continue to be due and payable, the new law, in addition to
repealing the supplemental annuity work-hour tax, also eliminates the separate
Supplemental Annuity Account under the Railroad Retirement Act. Supplemental
annuities provided under the Railroad Retirement Act are now funded through the
new National Railroad Retirement Investment Trust.
No changes were effected in railroad unemployment insurance taxes on employers.
The Board is making every effort to notify by mail all parties affected by
this legislation as soon as possible. Therefore patience on the part of
annuitants would be appreciated when contacting Board offices, as a higher than
usual volume of calls is expected as a result of this legislation.
Railroad Retirement Board offices are open to the public Monday through
Friday, except on Federal holidays. Persons can find the address and telephone
number of the Board office serving their area by calling the Board's nationwide
toll-free telephone number at 1-877-772-5772 or from the Board's web site at
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