A. Who We Are
The Railroad Retirement Board (RRB) is a Federal agency that administers
comprehensive income security programs for the nation's railroad employees,
retirees and their families. Legislation creating the RRB was enacted in the
1930's, with an initial focus on establishing a retirement benefit program for
the nation's rail workers. At that time, the railroad industry had more highly
developed pension plans than other businesses or industries, but these plans had
defects that the Great Depression magnified. A short time later, the RRB was
charged with administering an unemployment benefits program to address problems
unique to interstate rail employment.
Three Board Members appointed by the President of the United States, with the
advice and consent of the Senate, head the RRB. One member is appointed upon the
recommendation of railroad employers, one is appointed upon the recommendation
of railroad labor organizations and the third, the Chairman, is appointed to
represent the public interest. The Board Members all serve 5-year, staggered
terms. The RRB currently employs about 950 full-time equivalent employees who
work in its Chicago headquarters and in over 50 field offices around the
As an independent agency in the executive branch of the Federal Government, the
RRB reports to the President and Congress. RRB officials work closely with the
President's Office of Management and Budget with respect to the agency's budget
and executive management initiatives. They also testify at congressional
hearings on proposed changes to the RRB's enabling statutes and the annual
appropriation for benefit payments and agency administrative expenses. (The
agency's administrative expenses have traditionally averaged about one percent
of benefit payments.)
The RRB also works closely with other Federal agencies and some State agencies.
The principal ones, inasmuch as they relate to benefit administration, are the
Social Security Administration, the Centers for Medicare & Medicaid Services,
State employment security departments and, to a lesser extent, the Department of
Labor. Other agencies with which the RRB interacts on a routine basis include
the Department of the Treasury, the Office of Personnel Management, the General
Services Administration and the Government Accountability Office.
4 provides a graphic representation of our
internal and external stakeholders.
B. Whom We Serve
In fiscal year 2005, retirement and
survivor benefits of nearly $9.2 billion were paid to about 634,000
beneficiaries. During fiscal year 2005, the RRB also paid $73 million in net
unemployment and sickness benefits to some 29,000 rail workers.
Our primary customers are the employees and employers of the rail industry.
They include, for example, train and engine service employees, maintenance of
way employees, dispatchers, signalmen, computer specialists, sales personnel,
lawyers and accountants. They also include the railroad employees who have
retired on the basis of age and their spouses and dependents, as well as younger
beneficiaries who have retired on the basis of disability, and employees who are
not working because of layoffs, injuries or illness. Employers include the
nation's Class I freight railroads as well as about 600 other employers,
including short line and regional railroads, Amtrak, certain commuter roads and
rail labor unions.
The RRB pays retirement benefits to railroad workers and their spouses, and
survivor benefits to their families. A component of the retirement program also
includes disability annuities both permanent and occupational for railroad
employees. The RRB also enrolls railroad retirement beneficiaries for Medicare,
collects premiums for Part B, and oversees a nationwide contract for the
processing of Part B claims. The agency also works closely with rail employers
to ensure that payroll taxes are credited properly for all active employees.
As the only Federal agency dedicated to providing income security and related
programs to a specific industry, the RRB is a customer-centered organization.
The agency has traditionally enjoyed a relationship with its customers based on
cooperation, respect and service. This was confirmed by recent surveys of RRB
customers performed as part of the American Customer Satisfaction Index (ACSI).
Produced through a partnership of the University of Michigan Business School,
the American Society for Quality and Claes Fornell International (CFI), the ACSI
represents an independent annual measure of national customer satisfaction with
corporate and government services. The 2005 ACSI survey focused on those who
received payments as initial survivors or as spouse-to-widow conversions, a
group of the RRB's core constituencies. The RRB scored the highest of any
agency, with an overall satisfaction rating of 90, 18 points higher than the
overall score for the Federal government. This year's score is also the highest
among the other RRB ACSI studies - the 2001 survey score for retirement
beneficiaries was 82, and in 2002, the survey of unemployment and sickness
insurance beneficiaries received a score of 75.
In the 2005 survey, the RRB scored highest (94) in the area of customer
service, with respondents specifically praising the courtesy and professionalism
of agency employees. The agency earned a high confidence index score (92),
indicating that customers are very satisfied with service provided by the agency
and remain confident that they will continue to receive outstanding service in
the future. The agency also received high marks in the areas of the award
letters and the application process.
In addition, the survey revealed that the respondents' preferred methods of
service for conducting future business with the RRB are via phone contact and
U.S. Mail. The least preferred method for conducting future business is via the
C. What We Do
Our primary responsibility is to administer retirement, survivor,
disability, unemployment and sickness insurance programs for railroad workers
and their families as mandated by the Railroad Retirement Act and Railroad
Unemployment Insurance Act. We also make certain payments under provisions of
the Social Security Act and assist in providing Medicare coverage for our
beneficiaries. In addition, we have administrative responsibilities under the
Internal Revenue Code to withhold and report taxes in accordance with a variety
of Internal Revenue Service requirements.
While the railroad retirement system has remained separate from the social
security system, the two systems are closely coordinated with regard to earnings
credits, benefit payments, and taxes. The financing of the two systems is linked
through a financial interchange under which, in effect, the portion of railroad
retirement annuities that is equivalent to social security benefits is
coordinated with the social security system.
The purpose of this financial coordination is to place the social security
trust funds in the same position they would be in if railroad service were
covered by the social security program instead of the railroad retirement
program. Legislation enacted in 1974 restructured railroad retirement benefits
into two tiers, so as to coordinate them more fully with social security
benefits. The first tier is based on combined railroad retirement and social
security credits, using social security benefit formulas. The second tier is
based on railroad service only and is comparable to private pensions in other
In terms of unemployment benefits, the State-administered programs enacted
in the 1930's generally covered railroad employees. However, as railroad
operations crossed State lines, unemployed rail workers were sometimes denied
compensation by one State because their employer had paid unemployment taxes to
a different State. While there were cases in which rail employees appeared to be
eligible for benefits in more than one State, they often did not qualify in any.
A Federal study commission subsequently recommended a national plan for railroad
workers, which passed in 1938. Sickness benefits were added in 1946.
As an agency in the executive branch of the Federal Government, we must
comply with Federal requirements. They include those mandated by the budget and
appropriations process and other laws and regulations governing fiscal
activities, the collection of government debts, procurement, control of
government property, civil service employment, equal employment opportunity,
privacy, and security. As a member of the Federal community, we also participate
in various efforts such as the Combined Federal Campaign, blood drives and other
local community service volunteer programs, and various cultural diversity
D. Strengths and Weaknesses
One of the RRB's major strengths is the generally favorable financial
condition of its benefit programs, including the railroad retirement,
unemployment and sickness insurance systems. A number of legislative changes
enacted in recent years, with the support of railroad labor and management, made
this possible and helped guarantee solvency. Nevertheless, the long-term
financial stability of these systems still depends to a large extent on future
levels of railroad employment. A sudden, unanticipated and significant drop in
the level of employment could change this picture and require a greater
financial commitment by railroad employers and employees.
We have two other major strengths that are closely related a tradition of
outstanding customer service and a dedicated, talented workforce. Over the
years, both internal and external surveys have consistently shown high customer
satisfaction with the accuracy and timeliness of benefit payments and
information, informational materials and service delivery options. A key aspect
of this has been our employees' strong sense of mission and core values. Over
the years, they have been extremely flexible in terms of reacting to legislative
changes and budgetary pressures. Automation has been an important part of the
RRB's ability to do more with less, as we have been able to provide improved
service in the face of significant staff reductions. Figure 5 shows the increase
in the ratio of the railroad population (workers and retirees) to RRB employees
since 1993. If this trend continues, we will be challenged in our ability to
maintain high levels of performance in the future.
The RRB is a relatively small agency, with about 950 employees as of fiscal
year 2006. Because we are a small agency, our employees have the advantage of
being able to readily communicate with one another in every office and division.
It can also allow us to be more flexible and responsive in terms of addressing
problems or implementing new programs. Conversely, our size poses a continuing
challenge to retain staff expertise in specialized areas, such as technology,
financial management and actuarial services.
The agency has an aggressive, proactive stance to financial and management
controls. The RRB's financial statements received an unqualified clean audit
opinion in fiscal year 2005 for the sixth consecutive year. However, the RRB's
Inspector General identified three material weaknesses in his Opinion on the
Financial Statements, dated October 27, 2005: information security, performance
measures, and controls over the actuarial projection process. The Board Members
have acknowledged all three weaknesses and have determined that the information
security weakness represents a material weakness under the Federal Managers
Financial Integrity Act (FMFIA). The Board Members have not categorized the
other two areas as material weaknesses under the FMFIA. Nevertheless, the agency
has developed action plans and is taking steps to make improvements in all three
In March 2006, the RRB received a favorable fiscal year 2005 Performance
Measures Scorecard from the Department of the Treasury's Financial Management
Service (FMS). The Performance Measures Scorecard includes performance
indicators for timeliness, reconciliation of unexplained differences,
consistency/integrity, and completeness for the reporting of fiscal year 2005
financial information to FMS. Each performance indicator has performance goals
and the RRB has met all the goals listed for the four performance indicators.
E. Recent Legislative Activity
The Railroad Retirement and Survivors' Improvement Act of 2001 (RRSIA),
signed into law December 21, 2001, was the most significant railroad retirement
legislation in almost 20 years, and the first in almost three decades not to
involve tax increases or benefit reductions. The benefit and financing
provisions of the legislation, like those of most previous railroad retirement
legislation, were based on joint recommendations negotiated by a coalition of
rail freight carriers and rail labor organizations.
The Act liberalized early retirement benefits for 30-year employees and their
spouses, eliminated a cap on monthly retirement and disability benefits, lowered
the minimum service requirement from 10 years to at least 5 years, provided the
service was performed after 1995, and provided increased benefits for some
widow(er)s. Financing sections in the law provided for the investment of
railroad retirement funds in nongovernmental assets, adjustments in the payroll
tax rates paid by employers and employees, and the repeal of a supplemental
annuity work-hour tax.
In 2003, the Medicare Modernization Act (MMA) was signed into law allowing
for the biggest changes to senior health care in nearly 40 years, including the
establishment of a prescription drug benefit. While the Centers for Medicare &
Medicaid Services (CMS) is the agency primarily responsible for administering
the new legislation, the RRB is greatly impacted.
The MMA amended Section 1854(d) of the Social Security Act allowing
beneficiaries the option to have premiums for Part C (the managed care component
of Medicare) and Part D (the prescription drug program) withheld from monthly
benefit payments; previously the RRB only withheld Part B premiums. Section 811
of the MMA amended Section 1839 of the Social Security Act to increase Part B
premiums for higher income beneficiaries. Guidance from CMS and sufficient RRB
staff support are essential to implement the required system modifications to
facilitate proper withholding of the Part B, C and D premiums.
In addition to procedure and automated system changes, our field offices
frequently receive calls from RRB beneficiaries seeking assistance on provisions
of the legislation.
F. Who Gets Benefits and How Much They Receive
At the end of fiscal year 2005, the
average monthly annuity paid to career railroad workers was $2,165 and $1,659
for all retired rail employees. The average monthly annuity for spouses was
$640, and $1,065 for aged and disabled widow(er)s.
Under the Railroad Retirement Act, retirement and disability annuities are paid
to railroad workers with at least 10 years of service. Beginning in 2002, such
annuities are also payable to workers with 5 years of service if performed after
Full age annuities are payable at age 60 to workers with 30 years of
service. For those with less than 30 years of service, reduced annuities are
payable at age 62 and unreduced annuities are payable at full retirement age,
which is gradually rising from 65 to 67, depending on the year of birth.
Disability annuities can be paid on the basis of total or occupational
disability. Annuities are also payable to spouses and divorced spouses of
retired workers and to widow(er)s, surviving divorced spouses, remarried
widow(er)s, children, and parents of deceased railroad workers.
The RRB and the Social Security Administration share jurisdiction over the
payment of retirement and survivor benefits. The RRB makes the payment if the
employee had at least 10 years of railroad service, or 5 years if performed
after 1995; for survivor benefits, there is an additional requirement that the
employee's last regular employment before retirement or death was in the
railroad industry. If a railroad employee or his or her survivors do not qualify
for railroad retirement benefits, the RRB transfers the case to the Social
Security Administration, which treats the railroad retirement credits as regular
social security credits.
Unemployment insurance benefits are paid to railroad workers who are unemployed
but ready, willing, and able to work and sickness benefits to railroad workers
who are unable to work because of illness or injury. The RRB also operates a
placement service to assist unemployed railroaders in securing employment. A new
unemployment-sickness benefit year begins every July 1, with eligibility
generally based on railroad service and earnings in the preceding calendar year.
Up to 26 weeks of normal unemployment or sickness benefits are payable to an
individual in a benefit year. Additional extended benefits are payable to
persons with 10 or more years of service.
The current maximum benefit rate is $56 a day. It will rise to $57 in July
2006 and $59 in July 2007. Benefits are normally paid for the number of days of
unemployment or sickness in excess of 4 in a 14-day registration period, making
$560 ($570 in July 2006 and $590 in July 2007) the maximum benefit amount for
G. Sources of Financing
Payroll taxes paid by railroad employers and their employees are the primary
source of funding for the RRB's benefit programs. Railroad retirement taxes,
which have historically been higher than social security taxes, are calculated,
like benefit payments, on a two-tier basis. Railroad retirement tier I payroll
taxes are coordinated with social security taxes so that employees and employers
pay tier I taxes at the same rate as social security taxes. In addition, both
employees and employers pay tier II taxes that are used to finance railroad
retirement benefit payments over and above social security levels. Beginning
with calendar year 2004, these tier II taxes are based on the ratio of certain
asset balances to the sum of benefit payments and administrative expenses.
Additional trust fund income is derived from the financial interchange with
the social security trust funds, revenues from Federal income taxes on railroad
retirement benefits, and appropriations from general treasury revenues provided
after 1974 as part of a phase-out of certain vested dual benefits.
Revenues in excess of benefit payments are invested to provide additional
trust fund income, and the RRSIA legislation enacted in 2001 authorized
investment of railroad retirement funds in non-governmental assets, as well as
in governmental securities. This law also established the National Railroad
Retirement Investment Trust.
The railroad unemployment-sickness benefit program is financed by taxes on
railroad employers under an experience-rating system. Each employer's payroll
tax rate is determined annually by the RRB on the basis of benefit payments to
the railroad's employees.
H. Financial Status of RRB Programs
Railroad Retirement Accounts The
RRB continues to coordinate its activities with the National Railroad Retirement
Investment Trust (NRRIT), which was established by the Railroad Retirement and
Survivors' Improvement Act of 2001 to manage and invest railroad retirement
assets. Through fiscal year 2005, the RRB transferred a total of $21.276 billion
to the NRRIT for this purpose. During the same period, the NRRIT transferred
$2.673 billion to the Railroad Retirement Account for payment of retirement and
survivor benefits. As of September 30, 2005, the market value of NRRIT-managed
railroad retirement assets was approximately $27.7 billion.
The Board's 2005 railroad retirement financial report to Congress, which
addressed the period 2005-2029, was generally favorable, concluding 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. This is an improvement over the
2004 report and reflects continued favorable employment experience in the
railroad industry. However, the 2005 report also indicated that the long-term
stability of the system is still questionable. Under its current financing
structure, actual levels of railroad employment and investment return over the
coming years will largely determine whether corrective action is necessary. No
financing changes were recommended by the Board based on this report.
Railroad Unemployment Insurance Account
The equity balance of the Railroad Unemployment Insurance Account at the end
of fiscal year 2005 was $94.2 million, an increase of $14.3 million from the
previous year. The RRB's June 2005 report on the financial status of the
railroad unemployment insurance system was generally favorable, indicating that
even as maximum daily benefit rates rise 39 percent (from $56 to $78) from 2004
to 2015, experience-based contribution rates maintain solvency, with the
exception of small, short-term cash-flow problems in 2007 and 2008. Projections
show quick repayment of the loans, even under our most pessimistic assumption.
The average employer contribution rate remains well below the maximum throughout
the projection period, but a 1.5 percent surcharge is now in effect and is
expected for calendar year 2007. No financing changes were recommended by the
Board based on this report.