Prepared by Public Affairs 312-751-4777
The Railroad Retirement Board (RRB) is
required by law to submit annual financial reports to Congress on the financial
condition of the railroad retirement system and the railroad unemployment
insurance system. These reports must also include recommendations for any
financing changes which may be advisable in order to ensure the solvency of the
systems. In June, the RRB submitted its 2013 reports on the railroad retirement
and railroad unemployment insurance systems.
The following questions and answers summarize the findings of these reports.
1. What were the assets of the railroad retirement and railroad unemployment
insurance systems last year?
As of September 30, 2012, total railroad retirement system assets, comprising
assets managed by the National Railroad Retirement Investment Trust and the
railroad retirement system accounts at the Treasury, equaled $25.3 billion. The
Trust was established by the Railroad Retirement and Survivors' Improvement Act
of 2001 to manage and invest railroad retirement assets. The cash balance of the
railroad unemployment insurance system was $175.3 million at the end of fiscal
2. What was the conclusion of the 2013 report on the financial condition of the
railroad retirement system?
The overall conclusion was that, barring a sudden, unanticipated, large decrease
in railroad employment or substantial investment losses, the railroad retirement
system will experience no cash-flow problems during the next 25 years. The
long-term stability of the system, however, is still uncertain. Under the
current financing structure, actual levels of railroad employment and investment
return over the coming years will largely determine whether corrective action is
3. What methods were used in forecasting the financial condition of the railroad
The 2013 report projected the various components of income and outgo of the
railroad retirement system under three employment assumptions, intended to
provide an optimistic, moderate and pessimistic outlook, for the 25 calendar
years 2013-2037. The projections of these components were combined and the
investment income calculated to produce the projected balances in the railroad
retirement accounts at the end of each projection year.
Projecting income and outgo under optimistic, moderate and pessimistic
employment assumptions, the valuation indicated no cash-flow problems occur
throughout the 25-year projection period under any of the assumptions.
4. How do the results of the 2013 report compare with those of the 2012 report?
The projected tier II tax rates for each calendar year are either the same or
lower than in last year's report. (Railroad retirement payroll taxes, like
railroad retirement benefits, are calculated on a two-tier basis.) The projected
combined account balances are higher at the end of each year, except under the
moderate employment assumption where lower tax rates lead to lower account
balances in 2034-2037.
The favorable comparison with last year was due to overall favorable economic
and employment experience, with the largest impacts resulting from employment
exceeding the RRB's projections and actual investment return of approximately
13.9 percent exceeding the expected investment return of 7 percent in calendar
5. Did the 2013 report on the financial condition of the railroad retirement
system recommend any railroad retirement payroll tax rate changes?
The report did not recommend any change in the rate of tax imposed by current
law on employers and employees.
6. What were the findings of the 2013 report on the financial condition of the
railroad unemployment insurance system?
The RRB's 2013 railroad unemployment insurance financial report was also
generally favorable. Even as maximum benefit rates increase 42 percent (from $66
to $94) from 2012 to 2023, experience-based contribution rates are expected to
keep the unemployment insurance system solvent, except for possible small,
short-term cash flow problems in fiscal years 2015 and 2016 under the
pessimistic assumption. However, projections show quick repayment of any loans
by the end of each fiscal year.
Unemployment levels are the single most significant factor affecting the
financial status of the railroad unemployment insurance system. However, the
system's experience-rating provisions, which adjust contribution rates for
changing benefit levels, and its surcharge trigger for maintaining a minimum
balance, help to ensure financial stability in the advent of adverse economic
Under experience-rating provisions, each employer's contribution rate is
determined by the RRB on the basis of benefit payments made to the railroad's
employees. Even under the report's most pessimistic assumption, the average
employer contribution rate remains well below the maximum throughout the
No surcharge is in effect in calendar year 2013, and the report predicts one
will not be required in calendar 2014. A surcharge of 1.5 percent is likely in
calendar years 2015 and 2016.
What methods were used to evaluate the financial condition of the railroad
unemployment insurance system?
The economic and employment assumptions used in the unemployment insurance
report corresponded to those used in the 2013 report on the financial condition
of the retirement system. Projections were made for various components of income
and outgo under each of the three employment assumptions, but for the period
2013-2023, rather than a 25-year period.
8. Did the 2013 report on the railroad unemployment insurance system recommend
any financing changes to the system?
No financing changes were recommended at this time by the report.
|The RRB's 2013
financial reports on the retirement and unemployment insurance systems are
available in their entirety on the agency's website at www.rrb.gov.
Information on the National Railroad Retirement Investment Trust,
including its quarterly and annual reports, is also available on the site.