Contributions

The railroad unemployment and sickness benefit programs are financed exclusively by contributions of railroad employers, based on the taxable earnings of their employees. The employees themselves do not contribute.

Experience-based tax rates were phased in during 1991. Each employer pays contributions at a rate which takes into consideration the employer’s actual incidence of benefit usage. Under experience rating, employers whose employees have low incidences of unemployment and sickness pay contributions at a lower rate than employers with higher levels of benefit usage. Each employer’s rate also has a component for administrative expenses and a component to cover costs shared by all employers.

In 2009, the basic tax rates on railroad employers, including covered commuter railroads, range from a minimum of 0.65 percent to a maximum of 12 percent. Also, a surcharge of 1.5 percent is added to the basic tax rates, as the Railroad Unemployment Insurance Account accrual balance of $122.5 million was less than the indexed threshold of $130.1 million but greater than a threshold of $65.1 million on June 30, 2008. Over 80 percent of employers are being assessed 2.15 percent in 2009 (the 0.65 percent minimum rate plus the 1.5 percent surcharge). New employers initially pay a tax of 2.61 percent in 2009, which represents the average rate paid by all employers in the period 2005-2007.

A surcharge is added to each employer’s tax rate during any calendar year in which the balance in the Railroad Unemployment Insurance Account on the preceding June 30 is less than an indexed threshold amount. If the account balance is less than $100 million (as indexed), but at least $50 million (as indexed), the surcharge will be 1.5 percent.  If the account balance is less than $50 million (as indexed), but greater than zero, the surcharge will be 2.5 percent. A maximum surcharge of 3.5 percent applies if the account balance is less than zero. If the account balance on the preceding June 30 is above $250 million (as indexed), the excess will be refunded to the employers in the form of a rate reduction for the year through a pooled credit. Each employer’s tax rate (prior to application of individual maximum and minimum limitations) will be reduced by the ratio of the excess amount to the taxable payroll of all employers.

The experience-based tax rates have a 12 percent maximum, or a 12.5 percent maximum if a 3.5 percent surcharge is in effect. Included in the rate is the basic rate, an administration tax rate of 0.65 percent, and, if either is applicable, the surcharge rate or the rate of the pooled credit. Since the basic employer tax rate plus any pooled credit cannot be less than zero, 0.65 percent is the minimum rate which any employer can pay.

Railroad Unemployment Insurance Account

Railroad unemployment insurance funds not needed immediately for the payment of benefits are deposited in the Railroad Unemployment Insurance Account maintained by the Treasury. This account, together with similar accounts for each State, forms a national unemployment trust fund. Deposits in the unemployment trust fund are invested by the Treasury in securities of the U.S. Government. Every quarter, the Railroad Unemployment Insurance Account and the Railroad Unemployment Insurance Administration Fund each receive a proportionate share of the interest earnings of the trust fund, based on average daily balances.

The Railroad Unemployment Insurance Administration Fund, separate from the Railroad Unemployment Insurance Account, pays the costs of administering the railroad unemployment insurance system. An amount equal to 0.65 percent of taxable payroll is set aside from railroad contributions for the Railroad Unemployment Insurance Administration Fund. Any amount in the Railroad Unemployment Insurance Administration Fund in excess of $6 million (on an accrual basis) on September 30 of any year is transferred to the Railroad Unemployment Insurance Account.

Borrowing Authority

To ensure adequate funds in periods of high unemployment, Congress gave the Board authority in 1959 to borrow money from the Railroad Retirement Account for the payment of benefits from the Railroad Unemployment Insurance Account.

Financial Report

The Railroad Retirement Board is required to report annually to the Congress on the financial status of the railroad unemployment insurance system. The reports must include any recommendations for financing changes which might be advisable, including any adjustment the Board recommends regarding the rates of employer contributions.

The Board’s 2009 railroad unemployment insurance financial report was generally favorable. Even as projected maximum benefit rates increase 43 percent from $61 to $87 from 2008 to 2019, experience-based contribution rates are expected to maintain solvency. While small, short-term cash-flow problems may occur in 2010 and 2011, projections show quick repayment of loans resulting from any shortfall, even under the most pessimistic employment assumption. The report also predicted average employer contribution rates well below the maximum throughout the projection period. A 1.5 percent surcharge, in effect in calendar year 2009 in order to maintain a minimum account balance, will likely remain in effect in 2010 and rise to 2.5 percent in 2011, according to the report. No financing changes were recommended by the Board.