The scheduled annuity reductions were averted by enactment of the Railroad Retirement Solvency Act on August 12, 1983. The 1983 Act was based on negotiated recommendations of management and labor, and also incorporated recommendations of Congress and the Administration. The amendments were, in part, patterned after major social security amendments enacted earlier in the year, which had already effected changes in railroad retirement taxes and benefits through coordinating provisions in the Railroad Retirement Act.
Under the Railroad Retirement Solvency Act, tier II taxes on employers increased from 11.75 percent to 12.75 percent in January 1984, to 13.75 percent in January 1985, and to 14.75 percent in January 1986. Tier II taxes on employees increased from 2 percent to 2.75 percent in 1984, to 3.50 percent in 1985, and to 4.25 percent in 1986. And since 1985, railroad retirement taxes are applied to earnings on an annual, rather than a monthly, basis. As a result of the 1983 social security amendments, tier I taxes on employers and employees increased from 6.70 percent to 7 percent in January 1984, to 7.05 percent in 1985, to 7.15 percent in 1986, to 7.51 percent in 1988 and to 7.65 percent in 1990. (The tier I tax rate has remained unchanged since 1990; however, it was temporarily reduced to 5.65 percent on employees in 2011 and 2012.)
The 1983 social security amendments subjected railroad retirement tier I annuity portions to Federal income taxes on the same basis as social security benefits and the Solvency Act made tier II benefits and vested dual benefit payments subject to Federal income tax on the same basis as private pensions, beginning with tax year 1984. The revenues raised from income taxes on tier I and vested dual benefits are used for benefit payments. Revenues raised by the tax on tier II benefits were to be used for benefit payments through fiscal year 1988, after which the revenues would remain in general Treasury funds. Subsequent legislation extended these transfers permanently.
Other Financing Provisions
The Railroad Retirement Account was reimbursed in three installments from the general fund of the Treasury for shortfalls in vested dual benefit appropriations between 1975 and 1981. The railroad retirement system's authority to borrow general U.S. Treasury funds until the RRB receives financial interchange funds from the social security system was broadened to place financial interchange monies in the Railroad Retirement Account effectively on a current basis.
The 1983 social security amendments deferred July 1983 cost-of-living increases to January 1984 and required that future increases be made in January of subsequent years. This deferral applied to railroad retirement tier I annuity amounts as well as social security benefits. The Railroad Retirement Solvency Act correspondingly changed the future payment dates of tier II cost-of-living increases from July 1 to January 1, with the first increase payable on January 1, 1985. It also required an offset of the dollar amount of the next five percent of tier I cost-of-living increases from tier II benefits.
The Act modified early retirement provisions for 30-year employees attaining age 60 after June 1984 by applying certain reductions to the tier I portions of their annuities if they retired before age 62. The reductions did not affect tier II benefits, and employees who acquired 30 years of service and attained age 60 before July 1, 1984, could still retire at any time with full benefits, as under prior law. (The Railroad Retirement and Survivors' Improvement Act of 2001 as described below eliminated these reductions for 60/30 employees retiring after 2001.) The 1983 law established a five-month waiting period for railroad retirement disability annuities, just as for social security disability benefits, and altered the tier I computation of annuities subject to reduction for certain non-covered service pensions. It required the RRB to honor court orders that treat non-tier I railroad retirement benefits as property subject to division in proceedings related to divorce, annulment or legal separation. And the Act limited the retroactivity of applications for benefits to a maximum of six months to conform to the Social Security Act, except for disability benefit applications, which can retroact 12 months.
The Solvency Act eliminated annuity reductions made under prior law when military service was counted as railroad service and was also the basis for benefits under another Federal law. It conformed railroad retirement student benefit provisions to social security student benefit provisions and eliminated age reductions applied to disabled widow(er)s' annuities for months they were under age 60 when their annuities began.