Railroad retirement benefits are based on months of service and earnings credits. Earnings are creditable up to certain annual maximums on the amount of compensation subject to railroad retirement taxes.
Credit for a month of railroad service is earned for every month in which an employee had some compensated service for an employer covered by the Railroad Retirement Act, even if only one day's service is performed in the month. (Local lodge compensation is disregarded for any calendar month in which it is less than $25. However, work by a local lodge or division secretary collecting insurance premiums, regardless of the amount of salary, is creditable railroad work.) Also, under certain circumstances, additional service months may be deemed in some cases where an employee does not actually work in every month of the year.
The following questions and answers describe the conditions under which an employee may receive additional railroad retirement service month credits under the deeming provisions of the Railroad Retirement Act.
1. What requirements must be met before additional service months can be deemed?
A month can be deemed if an employee has less than twelve service months reported in the year, has sufficient compensation reported and is in an employment relation with a covered railroad employer, or is an employee representative, during that month. (An employee representative is a labor official of a noncovered labor organization who represents employees covered under the Acts administered by the Railroad Retirement Board.)
For this purpose, an employment relation generally exists for an employee on an approved leave of absence (for example, furlough, sick leave, suspension, etc.). An employment relation is severed by retirement, resignation, relinquishing job rights in order to receive a separation allowance, or termination.
2. How is credit for additional service months computed?
For additional service months to be deemed, the employee’s compensation for the year, up to the annual tier II maximum, must exceed an amount equal to 1/12 of the tier II maximum multiplied by the number of service months actually worked. The excess amount is then divided by 1/12 of the tier II maximum; the result, rounded up to the next whole number, equals the maximum number of months that may be deemed as service months for that year. Fewer months may be deemed, if an employment relation, as defined in Question 1, does not exist.
3. An employee works seven months in 2017 before being furloughed, but earns compensation of $95,300. How many deemed service months could be credited to the employee?
The employee could be credited with five additional service months. One-twelfth of the 2017 $94,500 tier II maximum ($7,875) times the employee’s actual service months (seven) equals $55,125. The employee’s compensation in excess of $55,125 up to the $94,500 maximum is $39,375, which divided by $7,875 equals five. Therefore, five deemed service months could be added to the seven months actually worked and the employee would receive credit for 12 service months in 2017.
4. Another employee works for seven months in 2017 and earns compensation of $75,200. How many deemed service months could be credited to this employee?
In this case, the excess amount ($75,200 minus $55,125) is $20,075, which divided by $7,875 equals 2.549. After rounding, this employee could receive credit for three deemed service months and be credited with a total of 10 months of service in 2017.
5. Another employee works for eight months in 2017 before resigning on August 15, but earns compensation of $91,000. How many deemed service months could be credited to this employee?
None. Since the employee resigned in August, there is no employment relationship for the remaining months and no additional service months may be deemed and credited.
6. Should an employee preparing to retire take deemed service months into account when designating the date his or her railroad retirement annuity begins?
Credit for deemed service months is a factor an employee may wish to consider in selecting an annuity beginning date. For instance, in some cases, a designated annuity beginning date that considers deemed service months could be used to establish basic eligibility for certain benefits, increase an annuity’s tier II amount, or establish a current connection. It should be noted that service months cannot be deemed after the annuity beginning date.
7. What would be an example of using deemed service months to establish benefit eligibility?
An example would be an employee between the ages of 60 and 62 who might be able to use deemed service months to establish the 360 months of service needed to qualify for an unreduced age annuity prior to full retirement age.
For instance, a 60-year-old employee last performed service on May 15, 2017, and received $55,000 in compensation in 2017. She is credited with 358 months of creditable railroad service through May 2017. If the employee wishes to retire on age, she must wait until she is full retirement age, which ranges between 66 and 67 depending upon the employee’s year of birth, or age 62 if she is willing to accept an age-reduced annuity. She needs at least two additional months of service to establish eligibility for an unreduced annuity prior to full retirement age.
The employee’s excess amount ($55,000 minus $39,375) is $15,625, which divided by $7,875 equals 1.984. Therefore, two deemed service months could be added to the five months actually worked and the employee would receive credit for seven service months in 2017 for a total of 360 service months, allowing her to receive an unreduced annuity beginning July 2, 2017.
8. How could deemed service months be used to increase an employee's tier II amount?
An employee worked in the first five months of 2017 and received compensation of $53,500. He does not relinquish his rights until July 2, 2017, and applies for an annuity to begin on that date
The excess amount ($53,500 minus $39,375) is $14,125, which yields two deemed service months for a total of seven service months in 2017. Had the employee relinquished his rights and applied for an annuity to begin on July 1, he would have been given credit for only six service months.
The employee received the maximum compensation in all of the last five years and had 360 months of service through 2016. The additional service and compensation increases his tier II from $1,543.04 to $1,559.14. However, delaying the annuity beginning date past the second day of the month after the date last worked solely to increase the tier II amount would not generally be to the employee’s advantage.
9. Can deemed service months help an employee establish a current connection?
Yes. For example, an employee left the railroad industry in 2002 and engaged in employment covered by the Social Security Act. In August 2016, she returned to railroad employment and worked through June 28, 2017. She received compensation of $47,800 in 2017. She does not relinquish her rights until July 2, 2017, and applies for an annuity to begin on July 2, 2017.
In this case, the excess amount ($47,800 minus $47,250) is $550, which yields one deemed service month. Consequently, the employee is given credit for seven service months in 2017. With five months of service in 2016 and seven months in 2017, the employee establishes a current connection. Had she designated the earliest annuity beginning date permitted by law, she would not have met the 12-in-30-month requirement for a current connection. (An employee who worked for a railroad in at least 12 months in the 30 months immediately preceding the month his or her railroad retirement annuity begins will meet the current connection requirement for a supplemental annuity, occupational disability annuity, or survivor benefits.)
10. Can an employee ever receive credit for more than 12 service months in any calendar year?
No. Twelve service months are the maximum that can be credited for any calendar year.
11. Where can an employee get more information on how deemed service months could affect his or her annuity?
Claimants with questions about deemed service months should contact the nearest RRB office online or by phone. Field Office Locator provides easy access to any field office webpage where the street address and other service information is posted, as well as the option to contact the office directly by using the feature labeled send a secure message.
The agency’s toll-free number (1-877-772-5772) is equipped with an automated menu offering a variety of service options which include finding the street address for a local field office, hearing general information regarding retirement benefits, requesting documents related to various benefits, and being transferred to an office to speak with a representative or leave a message. Most RRB field offices operate during the business hours of 9:00 a.m. to 3:30 p.m. on weekdays, except for Wednesdays when offices are open to the public from 9:00 a.m. to noon. All RRB offices are closed on Federal holidays.