Posts Tagged ‘current connection’

RRB: Buyouts and Railroad Retirement Benefits

Railroad employees frequently ask the Railroad Retirement Board (RRB) how the acceptance of a buyout from a railroad employer affects their future eligibility for benefits under the Railroad Retirement and Railroad Unemployment Insurance Acts. The following questions and answers provide information on this subject.

1.   Would leaving railroad work and accepting a buyout mean that an employee forfeits any future entitlement to an annuity under the Railroad Retirement Act?

As long as an employee has acquired at least 10 years (120 months) of creditable rail service, or 5 years (60 months) of creditable service if such service was performed after 1995, he or she would still be eligible for a regular railroad retirement annuity upon reaching retirement age, or, if totally disabled, for an annuity before retirement age, regardless of whether or not a buyout was ever accepted.

However, if a person permanently leaves railroad employment before attaining retirement age, the employee may not be able to meet the requirements for certain other benefits, particularly the current connection requirement for annuities based on occupational, rather than total, disability and for supplemental annuities paid by the RRB to career employees.

In addition, if an employee does not have a current connection, the Social Security Administration, rather than the RRB, would have jurisdiction of any survivor benefits that become payable on the basis of the employee’s combined railroad retirement and social security covered earnings. The survivor benefits payable by the RRB are generally greater than those paid by the Social Security Administration.

2.   How are buyout payments treated under the Railroad Retirement and Railroad Unemployment Insurance Acts?

Buyout payments that result from the abolishment of an employee’s job are creditable as compensation under the Railroad Retirement and Railroad Unemployment Insurance Acts. While the actual names of these employer payments may vary, the treatment given them by the RRB will depend upon whether the employee relinquished or retained his or her job rights. If the employee relinquishes job rights to obtain the compensation, the RRB considers the payment a separation allowance. This compensation is credited to either the month last worked or, if later, the month in which the employee relinquishes his or her employment relationship. While all compensation subject to tier I payroll taxes is considered in the computation of a railroad retirement annuity, no additional service months can be credited after the month in which rights are relinquished.

The RRB considers the buyout payment a dismissal allowance, even though the employer might designate the payment as a separation allowance, if the employee retains job rights and receives monthly payments credited to the months for which they are allocated under the dismissal allowance agreement. This is true even if the employee relinquishes job rights after the end of the period for which a monthly dismissal allowance was paid. However, supplemental unemployment or sickness benefits paid under an RRB-approved nongovernmental plan by a railroad or third party are not considered compensation for railroad retirement purposes.

3.   Suppose an employee is given a choice between (1) accepting a separation allowance, relinquishing job rights and having the payment he or she receives credited to one month or (2) accepting a dismissal allowance, retaining job rights and having the payment credited to the months for which it is allocated. What are some of the railroad retirement considerations the employee should keep in mind?

Individual factors such as an employee’s age and service should be considered.

For example, if an employee is already eligible to begin receiving a railroad retirement annuity, he or she may find it advantageous to relinquish job rights, accept a separation allowance, and have the annuity begin on the earliest date allowed by law. Any periodic payments made after that date would not preclude payment of the annuity because the employee has relinquished job rights.

On the other hand, some younger employees may find it more advantageous to retain job rights and accept monthly compensation payments under a dismissal allowance if these payments would allow them to acquire 120 months of creditable rail service (or 60 months of creditable rail service if such service was performed after 1995) and establish future eligibility for a railroad retirement annuity. Also, additional service months might allow a long-service employee to acquire 30 years of service, which is required for early retirement at age 60, or 25 years of rail service, which is required for supplemental annuities paid by the RRB. Establishing 25 years of service could also aid an employee in maintaining a current connection under the Railroad Retirement Act.

4.   How would acquiring 25 years of railroad service assist an employee in maintaining a current connection?

The current connection requirement is normally met if the employee has railroad service in at least 12 of the last 30 consecutive months before retirement or death. If an employee does not qualify on this basis but has 12 months of service in an earlier 30-month period, he or she may still meet the requirement if the employee does not work outside the railroad industry in the interval following the 30-month period and the employee’s retirement, or death if that occurs earlier. Nonrailroad employment in that interval will likely break the employee’s current connection.

However, a current connection can be maintained for purposes of supplemental and survivor annuities, but not occupational disability annuities, if the employee completed 25 years of railroad service, was involuntarily terminated without fault from his or her last job in the railroad industry, and did not thereafter decline an offer of employment in the same class or craft in the railroad industry, regardless of the distance to the new position. If all of these requirements are met, an employee’s current connection may not be broken, even if the employee works in regular nonrailroad employment after the 30-month period and before retirement or death. This exception to the normal current connection requirements became effective October 1, 1981, but only for employees still living on that date who left the rail industry on or after October 1, 1975, or who were on leave of absence, on furlough, or absent due to injury on October 1, 1975.

5.   Would the acceptance of a buyout have any effect on determining whether an employee could maintain a current connection under the exception provision?

In cases where an employee has no option to remain in the service of his or her employer, the termination of the employment is considered involuntary, regardless of whether the employee does or does not receive a separation or dismissal allowance.

However, an employee who chooses a separation allowance instead of keeping his or her seniority rights to railroad employment would, for railroad retirement purposes, generally be considered to have voluntarily terminated railroad service, and, consequently, would not maintain a current connection under the exception provision.

6.   An employee with 25 years of service is offered a buyout with the option of either taking payment in a single lump sum, or receiving monthly payments until retirement age. Could the method of payment affect the employee’s current connection under the exception provision?

If the employee had the choice to remain in employer service and voluntarily relinquished job rights prior to accepting the payments, his or her current connection would not be maintained under the exception provision, regardless of which payment option is chosen. Therefore, nonrailroad work after the 30-month period and before retirement, or the employee’s death if earlier, could break the employee’s current connection. Such an employee could only meet the current connection requirement under the normal procedures.

7.   Is it always advantageous to maintain a current connection?

While a current connection is generally advantageous for railroad retirement purposes, the costs of maintaining a current connection could outweigh its value, depending on individual circumstances. There may be other financial or personal factors involved besides railroad retirement eligibility and/or the preservation of a current connection, and these will vary from individual to individual.

8.   Are separation and dismissal allowances subject to railroad retirement payroll taxes?

Under the Railroad Retirement Tax Act, which is administered by the Internal Revenue Service, payments of compensation, including most buyouts, are subject to tier I, tier II and Medicare taxes on earnings up to the annual maximum earnings bases in effect when the compensation is paid. This is true whether payment is made in a lump sum or on a periodic basis.

To the extent that a separation allowance does not yield additional tier II railroad retirement service credits, a lump sum, approximating part or all of the railroad retirement tier II payroll taxes deducted from the separation allowance, will be paid upon retirement to employees meeting minimum service requirements or their survivors. This lump sum applies to separation allowances made after 1984.

If an employee receives a dismissal allowance, he or she receives service credits for the tier II taxes deducted from the dismissal allowance payments. Consequently, such a lump sum would not be payable.

If an employee has an option about how a buyout is to be distributed, he or she should consider the impact of both payroll taxes and income tax on the payments. Employees with questions in this regard should contact the payroll department of their railroad employer and/or the Internal Revenue Service.

9.   Would an employee be able to receive unemployment or sickness benefits paid by the RRB after accepting a separation allowance?

An employee who accepts a separation allowance cannot receive unemployment or sickness benefits for roughly the period of time it would have taken to earn the amount of the allowance at his or her straight-time rate of pay. This is true regardless of whether the allowance is paid in a lump sum or installments. For example, if an employee’s salary was $3,000 a month without overtime pay and the allowance was $12,000, he or she would be disqualified from receiving benefits for approximately four months.

10.   Can an employee receive unemployment benefits after his or her separation allowance disqualification period has ended?

An employee who has not obtained new employment by the end of the disqualification period and is still actively seeking work may be eligible for unemployment benefits at that time. The employee must meet all the usual eligibility requirements, including the availability for work requirement. An employee can establish his or her availability for work by demonstrating a willingness to work and making significant efforts to obtain work. In judging the employee’s willingness to work, the RRB considers, among other factors, the reason the employee accepted the separation allowance and the extent of his or her work-seeking efforts during the disqualification period.

11.   How would the acceptance of a dismissal allowance affect an employee’s eligibility for unemployment and sickness benefits?

Payments made under a dismissal allowance would be considered remuneration under the Railroad Unemployment Insurance Act and the employee would not be eligible for unemployment or sickness benefits during the period the dismissal allowance is being paid. The employee may, of course, be eligible for benefits after the end of this period if he or she is still actively seeking work or is unable to work because of illness or injury.

12.   Where can employees get more specific information on how benefits payable by the RRB are affected by a buyout?

Employees can get more information online or by phone. Field Office Locator at RRB.gov provides easy access to every field office webpage where the street address and other service information is posted, as well as the option to email an office directly 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, including being transferred to an office to speak with a representative, leave a message, or find the address of a local field office. The agency also maintains a TTY number, 312-751-4701, to accommodate those with hearing or speech impairments. Most RRB offices are open to the public on weekdays from 9:00 a.m. to 3:30 p.m., except on Wednesdays when offices are open from 9:00 a.m. to 12:00 p.m. RRB offices are closed on federal holidays.

The importance of a current connection for Railroad Retirement benefits

Under the Railroad Retirement Act, a “current connection with the railroad industry” is one of the eligibility requirements for occupational disability annuities and is one of the factors that determines whether the Railroad Retirement Board (RRB) or the Social Security Administration has jurisdiction over the payment of monthly benefits to survivors of a railroad employee. It is also one of the eligibility requirements for supplemental annuities.

The following questions and answers describe the current connection requirement and the ways the requirement can be met.

1. How is a current connection determined under the Railroad Retirement Act?

To meet the current connection requirement, an employee must generally have been credited with railroad service in at least 12 months of the 30 months immediately preceding the month his or her railroad retirement annuity begins. If the employee died before retirement, railroad service in at least 12 months in the 30 months before the month of death will meet the current connection requirement for the purpose of paying survivor benefits.

However, if an employee does not qualify on this basis, but has 12 months of service in an earlier 30-month period, he or she may still meet the current connection requirement. This alternative generally applies if the employee did not have any regular employment outside the railroad industry after the end of the last 30-month period which included 12 months of railroad service, and before the month the annuity begins or the date of death.

Once a current connection is established at the time the railroad retirement annuity begins, an employee never loses it, no matter what kind of work is performed thereafter.

2. Can nonrailroad work before retirement break a former railroad employee’s current connection?

Yes. Full or part-time work for a nonrailroad employer in the interval between the end of the last
30-month period including 12 months of railroad service and the month an employee’s annuity begins, or the month of death if earlier, can break a current connection, even where the earnings are minimal.

Self-employment in an unincorporated business will not break a current connection. However, if the business is incorporated the individual is considered to be an employee of the corporation, and such self-employment can break a current connection.

Federal employment with the Department of Transportation, National Transportation Safety Board, Surface Transportation Board, National Mediation Board, Railroad Retirement Board or Transportation Security Administration will not break a current connection. State employment with the Alaska Railroad, as long as that railroad remains an entity of the State of Alaska, will not break a current connection. Also, railroad service in Canada for a Canadian railroad will neither break nor preserve a current connection.

3. Are there any exceptions to these normal procedures for determining a current connection?

A current connection can also be maintained, for purposes of survivor and supplemental annuities, but not for an occupational disability annuity, if the employee completed 25 years of railroad service, was involuntarily terminated without fault from his or her last job in the railroad industry, and did not thereafter decline an offer of employment in the same class or craft in the railroad industry regardless of the distance to the new position.

If all of these requirements are met, an employee’s current connection may not be broken, even if the employee works in regular nonrailroad employment after the 30-month period and before retirement or death. This exception to the normal current connection requirement became effective October 1, 1981, but only for employees still living on that date who left the rail industry on or after October 1, 1975, or who were on leave of absence, on furlough or absent due to injury on October 1, 1975.

4. Would the acceptance of a buy-out have any effect on determining whether an employee could maintain a current connection under this exception provision?

Generally, in cases where an employee has no option to remain in the service of his or her railroad employer, the termination of the employment is considered involuntary, regardless of whether the employee does or does not receive a buy-out.

However, if an employee has the choice of either accepting a position in the same class or craft in the railroad industry or termination with a buy-out, accepting the buy-out is a part of his or her voluntary termination, and the employee would not maintain a current connection under the exception provision.

5. An employee with 25 years of service is offered a buy-out with the option of either taking payment in a single lump sum or of receiving monthly payments until retirement age. Could the method of payment affect the employee’s current connection under the exception provision?

The employee must always relinquish job rights in order to accept the buy-out, regardless of whether it is paid in a lump sum or in monthly payments. Neither payment option would extend the 30-month period. The determining factor for the exception provision to apply when a buy-out is paid is not the payment option. It is whether or not the employee stopped working involuntarily.

An employee considering accepting a buy-out should also be aware that if he or she relinquishes job rights to accept the buy-out, the compensation cannot be used to credit additional service months beyond the month in which the employee severed his or her employment relation, regardless of whether payment is made in a lump sum or on a periodic basis.

6. What if the buy-out agreement allows the employee to retain job rights and receive monthly payments until retirement age?

The RRB considers the buy-out to be a dismissal allowance. When a monthly dismissal allowance is paid, the employee retains job rights, at least until the end of the period covered by the dismissal allowance. If the period covered by the dismissal allowance continues up to the beginning date of the railroad retirement annuity, railroad service months would be credited to those months. These railroad service months would provide at least 12 railroad service months in the 30 months immediately before the annuity beginning date and maintain a regular current connection. They will also increase the number of railroad service months used in the calculation of the railroad retirement annuity.

7. Could the exception provision apply in cases where an employee has 25 years of railroad retirement coverage and a company reorganization results in the employee’s job being placed under social security coverage?

The exception provision has been considered applicable by the RRB in cases where a 25-year employee’s last job in the railroad industry changed from railroad retirement coverage to social security coverage and the employee had, in effect, no choice available to remain in railroad-retirement-covered service. Such 25-year employees have been deemed to have a current connection for purposes of survivor and supplemental annuities.

8. Where can a person get more specific information on the current connection requirement?

More information is available by visiting the RRB’s website, RRB.gov, or by calling an RRB office toll-free at 1-877-772-5772. Persons can also find the address of the RRB office servicing their area by calling the toll-free number, or by clicking on the Field Office Locator tab at RRB.gov. Most RRB offices are open to the public on weekdays from 9:00 a.m. to 3:30 p.m., except on Wednesdays when offices are open from 9:00 a.m. to 12:00 p.m. RRB offices are closed on Federal holidays.

Importance of a current connection for RRB benefits

RRB_seal_150pxUnder the Railroad Retirement Act, a “current connection” with the railroad industry is one of the eligibility requirements for occupational disability annuities and supplemental annuities, and is one of the factors that determine whether the Railroad Retirement Board or the Social Security Administration has jurisdiction over the payment of monthly benefits to survivors of a railroad employee.

The following questions and answers describe the current connection requirement and the ways the requirement can be met.

1. How is a current connection determined under the Railroad Retirement Act?

To meet the current connection requirement, an employee must generally have been credited with railroad service in at least 12 months of the 30 months immediately preceding the month his or her railroad retirement annuity begins. If the employee died before retirement, railroad service in at least 12 months in the 30 months before death will meet the current connection requirement for the purpose of paying survivor benefits.

However, if an employee does not qualify on this basis, but has 12 months of service in an earlier 30-month period, he or she may still meet the current connection requirement. This alternative generally applies if the employee did not have any regular employment outside the railroad industry after the end of the last 30-month period which included 12 months of railroad service and before the month the annuity begins or the month of death.

Once a current connection is established at the time the railroad retirement annuity begins, an employee never loses it, no matter what kind of work is performed thereafter.

2. Can nonrailroad work before retirement break a former railroad employee’s current connection?

Full or part-time work for a nonrailroad employer in the interval between the end of the last 30-month period including 12 months of railroad service and the month an employee’s annuity begins, or the month of death if earlier, can break a current connection.

Self-employment in an unincorporated business will not break a current connection. However, if the business is incorporated, self-employment may break a current connection.

Federal employment with the Department of Transportation, the National Transportation Safety Board, the Surface Transportation Board, the National Mediation Board, the Railroad Retirement Board, or the Transportation Security Administration will not break a current connection. State employment with the Alaska Railroad, as long as that railroad remains an entity of the State of Alaska, will not break a current connection. Also, railroad service in Canada for a Canadian railroad will neither break nor preserve a current connection.

3. Are there any exceptions to these normal procedures for determining a current connection?

A current connection can be maintained for purposes of supplemental and survivor annuities if the employee completed 25 years of railroad service, was involuntarily terminated without fault from his or her last job in the railroad industry, and did not thereafter decline an offer of employment in the same class or craft in the railroad industry, regardless of the distance to the new position.

If all of these requirements are met, an employee’s current connection may not be broken, even if the employee works in regular nonrailroad employment after the 30-month period and before retirement or death. This exception to the normal current connection requirements became effective Oct. 1, 1981, but only for employees still living on that date who left the rail industry on or after Oct. 1, 1975, or who were on leave of absence, on furlough, or absent due to injury on Oct. 1, 1975.

4. Would the acceptance of a buy-out have any effect on determining whether an employee could maintain a current connection under this exception provision?

In cases where an employee has no option to remain in the service of his or her railroad employer, the termination of the employment is considered involuntary, regardless of whether the employee does or does not receive a buy-out.

However, an employee who chooses a buy-out instead of keeping his or her seniority rights to railroad retirement employment would, for railroad retirement purposes, generally be considered to have voluntarily terminated railroad service, and consequently would not maintain a current connection under the exception provision.

5. An employee with 25 years of service is offered a buy-out with the option of either taking payment in a single lump sum or of receiving monthly payments until retirement age. Could the method of payment affect the employee’s current connection under the exception provision?

If the employee had the choice to remain in employer service and voluntarily relinquished job rights prior to accepting the payments, his or her current connection would not be maintained under the exception provision, regardless of which payment option is chosen. Therefore, nonrailroad work after the 30-month period and before retirement, or the employee’s death if earlier, could break the employee’s current connection. Such an employee could only meet the current connection requirement under the normal procedures.

6. What if the buy-out agreement allows the employee to retain job rights and receive monthly payments until retirement age?

Then the RRB considers the buy-out to be a dismissal allowance. When a monthly dismissal allowance is paid, the employee retains job rights, at least until the end of the period covered by the dismissal allowance. If the period covered by the dismissal allowance continues up to the beginning date of the railroad retirement annuity, railroad service months would be credited to those months. These railroad service months could provide at least 12 railroad service months in the 30 months immediately before the annuity beginning date and maintain a regular current connection. They will also increase the number of railroad service months used in the calculation of the railroad retirement annuity.

7. Could the exception provision apply in cases where an employee has 25 years of railroad retirement coverage and a company reorganization results in the employee’s job being placed under social security coverage?

The exception provision has been considered applicable by the RRB in cases where a 25-year employee’s last job in the railroad industry changed from railroad retirement coverage to social security coverage and the employee had, in effect, no choice available to remain in railroad retirement covered service. Such 25-year employees have been deemed to have a current connection for purposes of supplemental and survivor annuities.

8. Where can a person get more specific information on the current connection requirement?

Railroaders and former employees can contact a field office of the RRB for more information by calling toll-free at 1-877-772-5772. They can also find the address of the RRB office serving their area by calling this number or by visiting www.rrb.gov. Most RRB offices are open to the public from 9:00 a.m. to 3:30 p.m., Monday through Friday, except on federal holidays.