Private pension plans originated in the railroad industry in 1874 when the first formal industrial pension plan in North America was established. By 1927, over 80 percent of all railroad employees in the United States worked for employers who had formal plans in operation, but only a small proportion of the employees ever received benefits under these plans. The pension plans had a number of serious defects. They generally paid inadequate benefits and had limited provisions for disability retirement. Credits could not be transferred freely from employer to employer, and the employers could terminate the plans at will. With few exceptions, the plans were inadequately financed and could not withstand even temporary difficulties.
The Great Depression of the early 1930s led to movements for retirement plans on a national basis because few of the nation's elderly were covered under any type of retirement plan. Railroad employees were particularly concerned because the private railroad pension plans could not keep up with the demands made upon them by the general deterioration of employment conditions and by the great accumulation of older workers in the industry. While the social security system was in the planning stage, railroad workers sought a separate railroad retirement system which would continue and broaden the existing railroad programs under a uniform national plan. The proposed social security system was not scheduled to begin monthly benefit payments for several years and would not give credit for service performed prior to 1937, while conditions in the railroad industry called for immediate benefit payments based on prior service.
Legislation was enacted in 1934, 1935, and 1937 to establish a railroad retirement system separate from the social security program legislated in 1935. Such legislation, taking into account the particular circumstances of the rail industry, was not without precedent. Numerous laws pertaining to rail operations and safety had already been enacted since the Interstate Commerce Act of 1887. Since passage of the Railroad Retirement Acts of the 1930s, numerous other railroad laws have subsequently been enacted.