Most Railroad Retirement annuities, like Social Security benefits, will increase in January 2020 due to a rise in the Consumer Price Index (CPI) from the third quarter of 2018 to the corresponding period of the current year.
Cost-of-living increases are calculated in both the Tier I and Tier II benefits included in a Railroad Retirement annuity. Tier I benefits, like Social Security benefits, will increase by 1.6 percent, which is the percentage of the CPI rise. Tier II benefits will go up by 0.5 percent, which is 32.5 percent of the CPI increase. Vested dual benefit payments and supplemental annuities also paid by the Railroad Retirement Board (RRB) are not adjusted for the CPI change.
In January 2020, the average regular Railroad Retirement employee annuity will increase $36 a month to $2,875 and the average of combined benefits for an employee and spouse will increase $50 a month to $4,174. For those aged widow(er)s eligible for an increase, the average annuity will increase $20 a month to $1,428. However, widow(er)s whose annuities are being paid under the Railroad Retirement and Survivors’ Improvement Act of 2001 will not receive annual cost-of-living adjustments until their annuity amount is exceeded by the amount that would have been paid under prior law, counting all interim cost-of-living increases otherwise payable. Almost 52 percent of the widow(er)s on the RRB’s rolls are being paid under the 2001 law.
If a Railroad Retirement or survivor annuitant also receives a Social Security or other government benefit, such as a public service pension, any cost-of-living increase in that benefit will offset the increased Tier I benefit. However, Tier II cost-of-living increases are not reduced by increases in other government benefits. If a widow(er) whose annuity is being paid under the 2001 law is also entitled to an increased government benefit, her or his Railroad Retirement survivor annuity may decrease.
However, the total amount of the combined Railroad Retirement widow(er)’s annuity and other government benefits will not be less than the total payable before the cost-of-living increase and any increase in Medicare premium deductions.
The cost-of-living increase follows a Tier I increase of 2.8 percent in January 2019, which had been the largest in seven years. The Centers for Medicare and Medicaid Services will announce Medicare Part B premiums for 2020 later this year, and this information is available at www.medicare.gov.
In late December the RRB will mail notices to all annuitants providing a breakdown of the annuity rates payable to them in January 2020.
In a May 29 decision long dreaded by union coal miners, a bankruptcy court in St. Louis agreed that Patriot Coal has the right to void its collective bargaining agreements and cancel its pension and retirement obligations to 20,000 workers and family members.
The United Mine Workers of America (UMWA) argued in court that Patriot should not be let out of its debts, charging that its parent company, Peabody Energy, had designed Patriot to fail as a ploy to get out of $1 billion in retiree obligations. According to a financial analysis by Temple University Professor of Finance Bruce Rader, Patriot Coal was spun off from Peabody Energy with 42 percent of Peabody’s liabilities, but only 11 percent of its assets.
Employers and employees covered by the Railroad Retirement Act pay higher retirement taxes than those covered by the Social Security Act, so that railroad retirement benefits remain higher than Social Security benefits, especially for career employees.
The following questions and answers show the differences in railroad retirement and social security benefits payable at the close of the fiscal year ending September 30, 2009. They also show the differences in age requirements and payroll taxes under the two systems.
1. How do the average monthly railroad retirement and social security benefits paid to retired employees and spouses compare?
The average age annuity being paid by the Railroad Retirement Board (RRB) at the end of fiscal year 2009 to career rail employees was $2,690 a month, and for all retired rail employees the average was $2,125. The average age retirement benefit being paid under social security was over $1,160 a month. Spouse benefits averaged $795 a month under railroad retirement compared to $555 under social security.
The Railroad Retirement Act also provides supplemental railroad retirement annuities of between $23 and $43 a month, which are payable to employees who retire directly from the rail industry with 25 or more years of service.
2. Are the benefits awarded to recent retirees generally greater than the benefits payable to those who retired years ago?
Yes, because recent awards are based on higher average earnings. Age annuities awarded to career railroad employees retiring at the end of fiscal year 2009 averaged over $3,280 a month while monthly benefits awarded to workers retiring at full retirement age under social security averaged about $1,625. If spouse benefits are added, the combined benefits for the employee and spouse would approximate $4,550 under railroad retirement coverage, compared to $2,435 under social security. Adding a supplemental annuity to the railroad family’s benefit increases average total benefits for current career rail retirees to about $4,585 a month.
3. How much are the disability benefits currently awarded?
Disabled railroad workers retiring directly from the railroad industry at the end of fiscal year 2009 were awarded nearly $2,800 a month on the average while awards for disabled workers under social security averaged about $1,125.
While both the Railroad Retirement and Social Security Acts provide benefits to workers who are totally disabled for any regular work, the Railroad Retirement Act also provides disability benefits specifically for career employees who are disabled for work in their regular railroad occupation. Career employees may be eligible for such an occupational disability annuity at age 60 with 10 years of service, or at any age with 20 years of service.
4. Can railroaders receive benefits at earlier ages than workers under social security?
Railroad employees with 30 or more years of creditable service are eligible for regular annuities based on age and service the first full month they are age 60, and rail employees with less than 30 years of creditable service are eligible for regular annuities based on age and service the first full month they are age 62.
No early retirement reduction applies if a rail employee retires at age 60 or older with 30 years of service and his or her retirement is after 2001, or if the employee retired before 2002 at age 62 or older with 30 years of service.
Early retirement reductions are otherwise applied to annuities awarded before full retirement age — the age at which an employee can receive full benefits with no reduction for early retirement. This ranges from age 65 for those born before 1938 to age 67 for those born in 1960 or later, the same as under social security.
Under social security, a worker cannot begin receiving retirement benefits based on age until age 62, regardless of how long he or she worked, and social security retirement benefits are reduced for retirement prior to full retirement age regardless of years of coverage.
5. Does social security offer any benefits that are not available under railroad retirement?
Social security does pay certain types of benefits that are not available under railroad retirement. For example, social security provides children’s benefits when an employee is disabled, retired or deceased. Under current law, the Railroad Retirement Act only provides children’s benefits if the employee is deceased.
However, the Railroad Retirement Act includes a special minimum guaranty provision which ensures that railroad families will not receive less in monthly benefits than they would have if railroad earnings were covered by social security rather than railroad retirement laws. This guaranty is intended to cover situations in which one or more members of a family would otherwise be eligible for a type of social security benefit that is not provided under the Railroad Retirement Act. Therefore, if a retired rail employee has children who would otherwise be eligible for a benefit under social security, the employee’s annuity can be increased to reflect what social security would pay the family.
6. How much are monthly benefits for survivors under railroad retirement and social security?
Survivor benefits are generally higher if payable by the RRB rather than social security. At the end of fiscal year 2009, the average annuity being paid to all aged and disabled widow(er)s averaged $1,285 a month, compared to $1,100 under social security.
Benefits awarded by the RRB at the end of fiscal year 2009 to aged and disabled widow(er)s of railroaders averaged approximately $1,725 a month, compared to about $890 under social security.
The annuities being paid at the end of fiscal year 2009 to widowed mothers/fathers averaged $1,595 a month and children’s annuities averaged $935, compared to $840 and $745 a month for widowed mothers/fathers and children, respectively, under social security.
Those awarded at the end of fiscal year 2009 averaged $1,620 a month for widowed mothers/fathers and $1,240 a month for children under railroad retirement, compared to $820 and $750 for widowed mothers/fathers and children, respectively, under social security.
7. How do railroad retirement and social security lump-sum death benefit provisions differ?
Both the railroad retirement and social security systems provide a lump-sum death benefit. The railroad retirement lump-sum benefit is generally payable only if survivor annuities are not immediately due upon an employee’s death. The social security lump-sum benefit may be payable regardless of whether monthly benefits are also due. Both railroad retirement and social security provide a lump-sum benefit of $255. However, if a railroad employee completed 10 years of creditable railroad service before 1975, the average railroad retirement lump-sum benefit payable is $990. Also, if an employee had less than 10 years of service, but had at least 5 years of such service after 1995, he or she would have to have had an insured status under social security law (counting both railroad retirement and social security credits) in order for the $255 lump-sum benefit to be payable.
The social security lump sum is generally only payable to the widow(er) living with the employee at the time of death. Under railroad retirement, if the employee had 10 years of service before 1975, and was not survived by a living-with widow(er), the lump sum may be paid to the funeral home or the payer of the funeral expenses.
8. How do railroad retirement and social security payroll taxes compare?
Railroad retirement payroll taxes, like railroad retirement benefits, are calculated on a two-tier basis. Rail employees and employers pay tier I taxes at the same rate as social security taxes, 7.65 percent, consisting of 6.20 percent for retirement on earnings up to $106,800 in 2010 and 1.45 percent for Medicare hospital insurance on all earnings.
In addition, rail employees and employers both pay tier II taxes which are used to finance railroad retirement benefit payments over and above social security levels.
In 2010, the tier II tax rate on employees is 3.9 percent and on rail employers it is 12.1 percent on employee earnings up to $79,200.
9. How much are regular railroad retirement taxes for an employee earning $106,800 in 2010 compared to social security taxes?
The maximum amount of regular railroad retirement taxes that an employee earning $106,800 can pay in 2010 is $11,259, compared to $8,170.20 under social security. For railroad employers, the maximum annual regular retirement taxes on an employee earning $106,800 are $17,753.40 compared to $8,170.20 under social security. Employees earning over $106,800, and their employers, will pay more in retirement taxes than the above amounts because the Medicare hospital insurance tax of 1.45 percent is applied to all earnings.