Prepared by Public Affairs 312-751-4777
The Railroad Retirement Board (RRB) frequently receives questions from
railroad employers, employees, and employees' legal advisors about the RRB's
treatment of pay for time lost in retirement cases. The most common type of pay
for time lost situation arises out of personal injury settlements. Other types
include dismissal allowances, guaranteed wages, displacement allowances paid for
loss of earnings resulting from the employee being placed in a position or
occupation paying less money, and reinstatement awards which include back pay.
It is important that agreements between employers and employees involving pay
for time lost are structured correctly for railroad retirement purposes because
they are often intended to provide an employee with additional months of
creditable service needed to qualify for railroad retirement benefits. Crediting
fewer service months than intended may leave an employee ineligible for
benefits, while crediting an excessive number of months may delay the beginning
date of those benefits. The following questions and answers describe the
requirements for the crediting of pay for time lost under railroad retirement.
1. How do the railroad retirement laws treat
pay for time lost?
Pay for time lost attributable to lost earnings for an identifiable period of
absence from active service is treated as compensation creditable under the
Railroad Retirement and Railroad Unemployment Insurance Acts. Since the intent
of an award for pay for time lost is to treat the employee as if he or she had
actually performed compensated service during that period of time, the effect
upon railroad retirement eligibility and benefits is identical to the effect of
regular earnings for which service and compensation credit is received.
2. What factors should be taken into account
to ensure that pay for time lost will be creditable for railroad retirement
A payment must be made with respect to an identifiable period of time. The
specific months during the period of absence from active service must be
identified, for example “the 12-month period beginning March 2010 and ending
February 2011.” In the case of a payment for personal injury, the entire amount
is considered pay for time lost unless, at the time of payment, the employer
states that a particular amount of the payment was for other reasons. The
compensation is considered earned in, and therefore creditable to, the specified
An employment relationship must exist in the months to be credited with pay for
time lost. Allocation toward future months is permissible as long as an
employment relation is retained for that period. If a settlement agreement
requires that an employee resign to receive the payment, the employment relation
ceases upon resignation. Allocation after the resignation date is not allowed
because it cannot be considered time lost as an employee. With respect to pay
for time lost allocated into the future, service months and compensation are not
creditable until the time lost has actually elapsed.
The allocation must also relate to the actual period of absence from service for
which payment is made. Pay for time lost due to personal injury may not be
allocated to service months missing from an employee's record before the date of
injury. Similarly, the amount of the pay for time lost must relate to an
employee's normal monthly pay. A monthly allocation of at least ten times the
employee's daily pay rate in effect on the date of injury is ordinarily
considered a reasonable relationship to actual lost earnings. A lesser amount
would be considered a token payment and would not be acceptable. For example, if
an employee normally earns $130 a day, the amount of pay for time lost allocated
to each month should be at least $1,300.
This calculation would not apply in the event of a Federal Employer's Liability
Act (FELA) judgment. Unlike allocations in settlements, court judgments might
not define the monthly amounts being awarded for time lost. In these cases, a
gross amount of money is awarded to make the employee whole for the loss without
concern for the actual months lost. As with settlements, the allocation may be
for past or future months, assuming that the employment relation remains intact.
However, absent a specific allocation amount, or a specific award amount for
losses other than earnings, the RRB will consider the entire amount of damages
to be pay for time lost. The period of time lost will begin with the first month
lost due to the injury and end with the earlier of the months yielded by
allocating 1/12 of the annual earnings maximums to each month until the dollar
amount of the award is exhausted, or the date the employee relinquishes job
rights. As with all other compensation payments, employers are responsible for
the proper reporting of service and compensation to the RRB, as well as tax and
contribution obligations under the Railroad Retirement Tax Act and Railroad
Unemployment Insurance Act, respectively. Any service months and compensation
credited as a result of a judgment have the same weight under the RRB's laws as
service and compensation from other sources.
3. What other factors should be considered
to ensure that pay for time lost correctly provides the total of railroad
retirement service months intended?
It is of primary importance to have a precise breakdown of an employee's service
prior to any allocation. As a starting point, an employee should check his or
her most recent Form BA-6, or the employee may request a service and
compensation statement from the RRB. This will avoid allocating pay for time
lost to a month or months already reported as service months. Occasionally, an
employee will have service months reported for vacation pay, or by another
railroad employer--for example, by reason of paid union activity. Credit can
only be received once for any given month. Because the
period specified is the period for which service credit is due, a month
allocated to the same month already on record may result in a shortage of the
total months desired.
In addition, deemed service months should not be considered in the number of
total service months when an allocation period is determined if those deemed
service months are within the allocation period. A pay for time lost allocation
increasing service and compensation will generally eliminate or reduce the
number of deemed service months on record for any affected year. Deemed service
months are the product of a calculation. If the components of that calculation
change as the result of an adjustment to service and compensation due to a
payment for time lost, then the number of deemed service months to which an
employee is entitled is likely to change.
Also, the possibility that an employee has creditable military service should be
considered because such military service may not be reflected in the RRB's
records and may reduce the number of allocated months needed to attain annuity
eligibility. Employees are encouraged to file proof of any military service well
in advance of retirement so the RRB can determine whether the military service
is creditable as railroad service. The RRB will include creditable military
service in its records, which will expedite the annuity application process and
also ensure that the RRB's records of an employee's service are as complete as
4. Is pay for time lost subject to railroad
retirement tier I and tier II payroll taxes and/or employer contributions under
the Railroad Unemployment Insurance Act?
Yes. As with all compensation, pay for time lost is subject to taxation under
the Railroad Retirement Tax Act at the tier I and tier II tax rates and annual
maximum earnings bases in effect when payment is made. Pay for time lost is not,
however, creditable on the basis of when the payment is made, but to the period
for which the payment is allocated. Therefore, the taxable amount and creditable
amount will sometimes differ. The employee's portion of the railroad retirement
tax liability is usually withheld from the gross amount of the award.
Unlike tier I and tier II taxes, the amount of the employer contributions due
under the Railroad Unemployment Insurance Act is computed at the rates in
effect, subject to a monthly limit, during the months to which the payment is
5. What effect would pay for time lost have
on the payment of a railroad retirement annuity or unemployment or sickness
benefits for the same days?
Because pay for time lost is considered earned in the month allocated, an
employee is not entitled to an annuity under the Railroad Retirement Act with
respect to any months to which pay for time lost has been allocated. If an
employee applies for retirement benefits at the expiration of an allocation
period, he or she should submit documentation of the period covered by the
agreement with the application.
Similarly, an employee is not entitled to unemployment or sickness benefits
under the Railroad Unemployment Insurance Act with respect to any months to
which pay for time lost has been allocated. If a payment for time lost is made
which covers a period for which benefits under the
Railroad Unemployment Insurance Act were previously paid, the benefits would be
subject to recovery.
6. Where can someone get more information
about pay for time lost?
Additional information on pay for time lost, as well as other railroad
retirement topics, is available on the RRB's website at www.rrb.gov. In
addition, specific questions can be directed to the Railroad Retirement Board's
Quality Reporting Service Center, 844 North Rush Street, Chicago, Illinois
60611-2092. Their phone number is (312) 751-4992.