Railroad employees and their spouses closing in on retirement will be able to learn the latest benefit information and application requirements as part of a new program announced by Labor Member of the U.S. Railroad Retirement Board Walter A. Barrows.
Designed for railroad employees and spouses planning to retire within five years, the new Pre-Retirement Seminars will familiarize attendees with the retirement benefits available to them, and also guide them through the application process. Individuals who have not previously submitted documents required when filing a railroad retirement annuity application, such as proofs of age, marriage, or military service, are encouraged to bring this material to the seminar.
The program will begin this year on a pilot basis, with seminars planned for St. Louis on April 4, Omaha, Neb., on May 16, and Huntington, W.V., on June 20. Additional details regarding registration and locations will be announced soon.
RRB field personnel will lead the Pre-Retirement Seminars, which will be held from 1:30 p.m. to 3:30 p.m. On those same dates and in those same locations, Informational Conferences sponsored by the Office of the Labor Member will be conducted from 8:30 a.m. to 12:15 p.m. for invited rail labor representatives.
The amounts of compensation subject to railroad retirement tier I and tier II payroll taxes will increase in 2014, while the tier I and tier II tax rates will remain the same on both railroad employers and employees, the Railroad Retirement Board announced. Also, railroad unemployment insurance contribution rates paid by employers will not include a surcharge in 2014.
The railroad retirement tier I payroll tax rate on covered rail employers and employees for the year 2014 remains at 7.65 percent. The railroad retirement tier I tax rate is the same as the social security tax, and for withholding and reporting purposes is divided into 6.20 percent for retirement and 1.45 percent for Medicare hospital insurance. The maximum amount of an employee’s earnings subject to the 6.20 percent rate increases from $113,700 to $117,000 in 2014, but there is no maximum on earnings subject to the 1.45 percent Medicare rate.
An additional Medicare payroll tax of 0.9 percent applies to an individual’s income exceeding $200,000, or $250,000 for a married couple filing a joint tax return. While employers will begin withholding the additional Medicare tax as soon as an individual’s wages exceed the $200,000 threshold, the final amount owed or refunded will be calculated as part of the individual’s Federal income tax return.
The railroad retirement tier II tax rate on employees will remain 4.4 percent in 2014, and the employers’ rate will stay at 12.6 percent. The maximum amount of earnings subject to railroad retirement tier II taxes will increase from $84,300 to $87,000 in 2014. Since 2004, tier II tax rates are based on an average account benefits ratio reflecting railroad retirement fund levels. Depending on this ratio, the tier II tax rate for employees can be between 0 percent and 4.9 percent, while the tier II rate for employers can range between 8.2 percent and 22.1 percent.
Employers, but not employees, pay railroad unemployment insurance contributions, which are experience-rated by employer. The Railroad Unemployment Insurance Act also provides for a surcharge in the event the Railroad Unemployment Insurance Account balance falls below an indexed threshold amount. The accrual balance of the Railroad Unemployment Insurance Account was $204.2 million on June 30, 2013. Since the balance exceeded the indexed threshold of $144.8 million, no surcharge applies to the basic contribution rates for 2014. There was also no surcharge in 2013, although a surcharge of 1.5 percent applied in 2012.
As a result, the unemployment insurance contribution rates on railroad employers in 2014 will range from the minimum basic rate of 0.65 percent to the maximum of 12 percent on monthly compensation up to $1,440, an increase from $1,405 in 2013.
In 2014, the minimum rate of 0.65 percent will apply to 79 percent of covered employers, with 9 percent paying the maximum rate of 12 percent.
During the year, new employers will pay an unemployment insurance contribution rate of 4.53 percent, which represents the average rate paid by all employers in the period 2010-2012.
The payment of a railroad retirement annuity can be affected by entitlement to social security benefits, as well as certain other government benefits. Such dual entitlement, if not reported to the Railroad Retirement Board (RRB), can result in benefit overpayments that have to be repaid, sometimes with interest and penalties. The following questions and answers describe how dual benefit payments are adjusted by the RRB for annuitants eligible for social security benefits and/or other benefit payments.
1. How are dual benefits paid to persons entitled to both railroad retirement and social security benefits?
Since 1975, if a railroad retirement annuitant is also awarded a social security benefit, the Social Security Administration determines the amount due, but a combined monthly dual benefit payment should, in most cases, be issued by the RRB after the railroad retirement annuity has been reduced for the social security benefit.
2. Why is a railroad retirement annuity reduced when a social security benefit is also payable?
The tier I portion of a railroad retirement annuity is based on both the railroad retirement and social security credits acquired by an employee and figured under social security formulas. It approximates what social security would pay if railroad work were covered by social security. Tier I benefits are, therefore, reduced by the amount of any actual social security benefit paid on the basis of nonrailroad employment, in order to prevent a duplication of benefits based on social security-covered earnings.
The tier I dual benefit reduction also applies to the annuity of an employee qualified for social security benefits on the earnings record of another person, such as a spouse. And, the tier I portion of a spouse or survivor annuity is reduced for any social security entitlement, even if the social security benefit is based on the spouse’s or survivor’s own earnings. These reductions follow principles of social security law that, in effect, limit payment to the higher of any two or more benefits payable to an individual at one time. An annuitant is required to advise the RRB if any benefits are received directly from the Social Security Administration or if those benefits increase (other than for a cost-of living increase).
However, the tier II portion of a railroad retirement annuity is based on railroad service and earnings alone, is computed under a separate formula, and is not reduced for entitlement to a social security benefit.
3. Are there any exceptions to the railroad retirement annuity reduction for social security benefits?
No. However, if an employee qualified for dual benefits before 1975 and met certain vesting requirements, he or she can receive an additional annuity amount which offsets, in part, the dual benefit reduction. This additional amount, which reflects the dual benefits payable prior to 1975, is called a vested dual benefit payment. Legislation enacted in 1974 coordinated dual railroad retirement and social security benefit payments to eliminate certain duplications, but this legislation also included a grandfather provision to preserve the pre-1975 dual benefits of persons meeting certain vesting requirements by including vested dual benefit payments in their annuities.
Awards of these vested dual benefit amounts are now limited only to vested railroad employees with dual coverage on their own earnings. Spouses and widow(er)s retiring since 1981 no longer qualify. Fewer than ten vested dual benefits were awarded in fiscal year 2013.
4. Are there any funding limitations on the payment of vested dual benefits?
Vested dual benefit payments are funded by annual appropriations from general U.S. Treasury revenues. These appropriations account for less than one percent of total financing sources for the railroad retirement system. Payment of vested dual benefits is dependent on the time and amount of such appropriations. If the appropriation in a fiscal year is for less than the estimated total vested dual benefit payments, individual payments must be reduced.
5. Can Federal, State, or local government pensions also result in dual benefit reductions in a railroad retirement annuity?
Tier I benefits for employees first eligible for a railroad retirement annuity and a Federal, State or local government pension after 1985 may be reduced for receipt of a public pension based, in part or in whole, on employment not covered by social security or railroad retirement after 1956. This may also apply to certain other payments not covered by railroad retirement or social security, such as from a non-profit organization or from a foreign government or a foreign employer. Usually, an employee’s tier I benefit will not be reduced by more than 1/2 of his or her pension from noncovered employment. However, if the employee is under age 65 and receiving a disability annuity, the tier I benefit may be reduced by an added amount if the pension from noncovered employment is a public disability benefit.
Military service pensions, payments by the Department of Veterans Affairs, or certain benefits payable by a foreign government as a result of a totalization agreement between that government and the United States will not cause a reduction.
6. How does the public service pension apply to spouse or widow(er)s’ benefits?
The tier I portion of a spouse’s or widow(er)’s annuity may be reduced for receipt of any Federal, State or local government pension separately payable to the spouse or widow(er) based on her or his own earnings. The reduction generally does not apply if the employment on which the public service pension is based was covered under the Social Security Act throughout the last 60 months of public employment. Most military service pensions and payments from the Department of Veterans Affairs will not cause a reduction. Pensions paid by a foreign government or interstate instrumentality will also not cause a reduction. For spouses and widow(er)s subject to a public service pension reduction, the tier I reduction is equal to 2/3 of the amount of the public service pension.
7. What dual benefit restrictions apply when both a husband and wife are rail employees entitled to railroad retirement annuities?
If both the employee and spouse are railroad employees and either had some railroad service before 1975, the spouse tier I amount is reduced by the amount of the railroad employee tier I to which the spouse is entitled and that initial reduction is restored in the spouse tier II amount. The spouse tier I amount cannot be reduced below zero.
If both the employee and spouse started railroad employment after 1974, the amount of any spouse or divorced spouse annuity is reduced by the amount of the employee annuity to which the spouse is also entitled.
In survivor cases, if a widow or dependent widower is also a railroad employee annuitant, and either the widow(er) or the deceased employee had 120 months of railroad service before 1975, the tier I reduction may be partially restored in the survivor tier II amount.
If either the deceased employee or the widow(er) had some railroad service before 1975 but less than 120 months of service, the widow(er)’s own employee annuity and the tier II portion of the survivor annuity would be payable to the widow(er). The tier I portion of the survivor annuity would be payable only to the extent that it exceeds the tier I portion of the widow(er)’s own employee annuity.
If the widow(er) is entitled to a railroad retirement employee annuity and neither the widow(er) nor the deceased employee had any railroad service befo re 1975, the survivor annuity (tier I and tier II) payable to the widow(er) is reduced by the total amount of the widow(er)’s own employee annuity.
8. Can workers’ compensation or public disability benefits affect railroad retirement benefits?
If an employee is receiving a railroad retirement disability annuity, tier I benefits for the employee and spouse may, under certain circumstances, be reduced for receipt of workers’ compensation or public disability benefits.
9. How can an annuitant find out if receipt of any dual benefits might affect his or her railroad retirement annuity?
If an annuitant becomes entitled to any of the previously discussed dual benefit payments, or if there is any question as to whether a dual benefit payment requires a reduction in an annuity, he or she should contact an RRB field office by calling toll-free at (877) 772-5772. Annuitants can 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 a.m. to 3:30 p.m., Monday through Friday, except on federal holidays.
WASHINGTON – Social Security benefits for nearly 58 million people will increase by 1.5 percent next year, the government announced Wednesday.
The increase is among the smallest since automatic adjustments were adopted in 1975. It is small because consumer prices haven’t gone up much in the past year.
Under 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.
The U.S. Railroad Retirement Board (RRB) has announced that during the lapse in federal funding for certain government operations which began Oct. 1, ongoing benefit payments will continue and all RRB offices are expected to remain open.
RRB field offices, operating with reduced staffs, may also accept new claims for unemployment and sickness benefits, but will not be allowed under current budget laws to accept new applications for retirement, survivor, and disability benefits. Persons receiving ongoing benefit payments are still obliged to report any events that would affect the payment of their benefits.
Individuals calling the RRB’s toll-free telephone number (877) 772-5772 and having difficulty in reaching an agency representative are asked to be patient as offices are operating with a very limited staff.
Labor member of the RRB Walter A. Barrows has announced that during the lapse in funding, the informational conference program conducted by his office will be suspended.
As a result, the informational conference scheduled for Oct. 4 in Cincinnati, Ohio has been canceled. If the partial government shutdown continues through Oct. 11, conferences scheduled for Oct. 18 in Pittsburgh, Pa., and Louisville, Ky., will also be canceled; if it continues through Oct. 18, the conference planned for Oct. 25 in Philadelphia, Pa., will be canceled.
RRB field personnel responsible for leading these conferences will be unable to attend during the shutdown, as travel will be extremely limited for these and other agency employees.
Beginning Oct. 1, 2013, the U.S. Railroad Retirement Board (RRB) will reduce railroad unemployment and sickness insurance benefits by 7.2 percent due to federal budget cuts first implemented in March 2013. The original reduction had been 9.2 percent since March.
The adjusted reduction amount is based on revised projections of benefit claims and payments under the Railroad Unemployment Insurance Act. It will remain in effect through Sept. 30, 2014, the end of the fiscal year. Reductions in future fiscal years, should they occur, will be calculated based on applicable law.
The 7.2 percent reduction in railroad unemployment and sickness benefits will reduce the maximum daily benefit rate from $68.00 to $63.10. As a result, the total maximum amount payable in a two-week period with 10 days of unemployment will drop from $680 to $631.04.
Certain railroad sickness benefits are also subject to regular tier I railroad retirement taxes, resulting in a further reduction of 7.65 percent. Applying the 7.2 percent reduction to these sickness benefits will result in a daily benefit rate of $58.27, with a maximum two-week total of $582.77.
Under the previous 9.2 percent reduction, the maximum two-week unemployment benefit was $617.44, while the maximum for sickness benefits subject to tier I payroll taxes was $570.21.
These reductions are required under the Budget Control Act of 2011 and a subsequent sequestration order filed by President Obama to implement the mandated cuts. The law exempted social security benefits, as well as railroad retirement, survivor, and disability benefits paid by the RRB, from sequestration.
In fiscal year 2012, the RRB paid $11.3 billion in retirement and survivor benefits to about 573,000 beneficiaries, and net unemployment-sickness benefits of $88.5 million to about 26,000 claimants.
President Barack Obama Sept. 24 nominated Steven Anthony as the management member of the U.S. Railroad Retirement Board, replacing Jerome F. Kever, whose term is expiring.
Anthony’s appointment will require Senate confirmation.
Anthony most recently served as senior general counsel and secretary for the Norfolk Southern Corporation from 2007 to 2012. Previously, he was a Washington lobbyist for NS from 1997 to 2007 and NS general counsel from 1981 to 1997.
From 1978 to 1981, Anthony was secretary and general counsel of the Illinois Terminal Railroad.
Anthony received a bachelor of science degree in business administration from the University of Missouri and a juris doctorate from the University of Tulsa.
Kever was appointed to serve as management member of the RRB by President George H.W. Bush in 1992 upon the recommendation of the Association of American Railroads and the American Short Line and Regional Railroad Association. He was reappointed to a second term of office by President Bill Clinton in 1995, and then to a third term in May 2000, which ended in August 2003. He was reappointed by President George W. Bush.
The RRB is an independent agency in the executive branch of the federal government that administers comprehensive retirement-survivor and unemployment-sickness benefit programs for the nation’s railroad workers and their families. As part of the retirement program, the RRB also has administrative responsibilities under the Social Security Act for certain benefit payments and railroad workers’ Medicare coverage.
Railroad retirement benefits are subject to reduction if an employee with less than 30 years of service retires before attaining full retirement age. While employees with less than 30 years of service may still retire at age 62, the age at which full retirement benefits are payable has been gradually increasing since the year 2000, the same as for social security.
The following questions and answers explain how these early retirement age reductions are applied to railroad retirement annuities.
1. What is the full retirement age for employees with less than 30 years of service and is it the same for all employees?
Full retirement age, the earliest age at which a person can begin receiving railroad retirement or social security benefits without any reduction for early retirement, ranges from age 65 for those born before 1938 to age 67 for those born in 1960 or later, the same as for social security.
2. How are the changes in the maximum age reduction being phased in?
Since 2000, the age requirements for some unreduced railroad retirement benefits have been rising just like the social security requirements. For employees with less than 30 years of service and their spouses, full retirement age increases from 65 to 66, and from 66 to 67, at the rate of two months per year over two separate six-year periods. This also affects how reduced benefits are computed for early retirement.
The gradual increase in full retirement age from age 65 to age 66 affects those people who were born in the years 1938 through 1942. The full retirement age will remain age 66 for people born in the years 1943 through 1954. The gradual increase in full retirement age from age 66 to age 67 affects those who were born in the years 1955 through 1959. For people who were born in 1960 or later the full retirement age will be age 67.
3. How does this affect the early retirement age reductions applied to the annuities of those who retire before full retirement age?
The early retirement annuity reductions applied to annuities awarded before full retirement age are increasing. For employees retiring between age 62 and full retirement age with less than 30 years of service, the maximum reduction will be 30 percent by the year 2022. Prior to 2000, the maximum reduction was 20 percent.
Age reductions are applied separately to the tier I and tier II components of an annuity. The tier I reduction is 1/180 for each of the first 36 months the employee is under full retirement age when his or her annuity begins and 1/240 for each additional month (if any). This will result in a gradual increase in the reduction at age 62 to 30 percent for an employee once the age 67 retirement age is in effect.
These same reductions apply to the tier II component of the annuity. However, if an employee had any creditable railroad service before Aug. 12, 1983, the retirement age for tier II purposes will remain 65, and the tier II benefit will not be reduced beyond 20 percent.
The following shows how the gradual increase in full retirement age will affect employees.
Employee retires with less than 30 years of service
•If the employee was born in 1937* or earlier, his or her full retirement age** is 65 and the maximum annuity reduction at age 62 is 20%.
•If the employee was born in 1938*, his or her full retirement age** is 65 years and 2 months and the maximum annuity reduction at age 62 is 20.833%.
•If the employee was born in 1939*, his or her full retirement age** is 65 and 4 months and the maximum annuity reduction at age 62 is 21.667%.
•If the employee was born in 1940*, his or her full retirement age** is 65 and 6 months and the maximum annuity reduction at age 62 is 22.50%.
•If the employee was born in 1941*, his or her full retirement age** is 65 and 8 months and the maximum annuity reduction at age 62 is 23.333%.
•If the employee was born in 1942*, his or her full retirement age** is 65 and 10 months and the maximum annuity reduction at age 62 is 24.167%.
•If the employee was born in 1943 through 1954*, his or her full retirement age** is 66 and the maximum annuity reduction at age 62 is 25%.
•If the employee was born in 1955*, his or her full retirement age** is 66 and 2 months and the maximum annuity reduction at age 62 is 25.833%.
•If the employee was born in 1956*, his or her full retirement age** is 66 and 4 months and the maximum annuity reduction at age 62 is 26.667%.
•If the employee was born in 1957*, his or her full retirement age** is 66 and 6 months and the maximum annuity reduction at age 62 is 27.50%.
•If the employee was born in 1958*, his or her full retirement age** is 66 and 8 months and the maximum annuity reduction at age 62 is 28.333%.
•If the employee was born in 1959*, his or her full retirement age** is 66 and 10 months and the maximum annuity reduction at age 62 is 29.167%.
•If the employee was born in 1960* or later, his or her full retirement age** is 67 and the maximum annuity reduction at age 62 is 30%.
*A person attains a given age the day before his or her birthday. Consequently, someone born on January 1 is considered to have attained his or her given age on Dec. 31 of the previous year.
**If an employee has less than 10 years of railroad service and is already entitled to an age-reduced social security benefit, the tier I reduction is based on the reduction applicable on the beginning date of the social security benefit, even if the employee is already of full retirement age on the beginning date of the railroad retirement annuity.
4. What are some examples of how this will affect the amounts payable to employees retiring before full retirement age with less than 30 years of service?
Take the example of an employee born on June 2, 1951, who retires in 2013 at the age of 62. In terms of today’s dollars and current benefit levels, not counting future increases in creditable earnings, assume this employee is eligible for monthly tier I and tier II benefits, before age reductions, of $1,200 and $800, respectively, for a total monthly benefit of $2,000.
Upon retirement at age 62, the employee’s tier I benefit would be reduced by 25 percent, the maximum age reduction applicable in 2013. This would yield a tier I monthly benefit of $900; the employee’s tier II benefit would also be reduced by 25 percent, providing a tier II amount of $600 and a total monthly rate of $1,500. However, if the employee had any rail service before Aug. 12, 1983, the tier II benefit would be subject to a maximum reduction of only 20 percent, providing a tier II amount of $640, and a total monthly rate of $1,540.
As a second example, take an employee born on June 2, 1960, and also eligible for monthly tier I and tier II benefits, before age reductions, of $1,200 and $800, respectively, for a total monthly benefit of $2,000. This employee retires in 2022 at age 62 with no service before Aug. 12, 1983. Consequently, a 30 percent reduction is applied to both the tier I and tier II benefits and the net total annuity would be $1,400.
5. How are railroad retirement spouse benefits affected by this change?
If an employee retiring with less than 30 years of service is age 62, the employee’s spouse is also eligible for an annuity the first full month the spouse is age 62. Early retirement reductions are applied to the spouse annuity if the spouse retires prior to full retirement age. Beginning in the year 2000, full retirement age for a spouse gradually began to rise to age 67, just as for an employee, depending on the year of birth. While reduced spouse benefits are still payable at age 62, the maximum reduction will be 35 percent by the year 2022. However, if an employee had any creditable rail service prior to Aug. 12, 1983, the increased age reduction is applied only to the spouse’s tier I benefit. The maximum reduction in tier II, in this case, would only be 25 percent, as under prior law.
Take for an example the spouse of a railroader with less than 30 years of service, none of it prior to Aug. 12, 1983, who was born on April 2, 1960, and is retiring in 2022 at age 62, with a spouse annuity, in terms of today’s dollars and current benefit payments and before any reductions for age, of $1,000 a month. With the maximum reduction of 35 percent applicable in 2022, her net monthly benefit would be $650.
As a second example, if the same spouse had been born on April 2, 1951, and was retiring in 2013 at age 62, with the maximum age reduction of 30 percent, her net monthly benefit would be $700.
The following chart shows how this will affect the spouses of railroad employees if the employee retires with less than 30 years of service.
Spouse age reductions
•If the employee retires with less than 30 years of service and the employee’s spouse was born in 1937* or earlier, the spouse’s full retirement age** is 65 and the spouse’s maximum annuity reduction at age 62 is 25%.
•If the spouse was born in 1938*, the spouse’s full retirement age** is 65 years and 2 months and the spouse’s maximum annuity reduction at age 62 is 25.833%.
•If the spouse was born in 1939*, her or his full retirement age** is 65 and 4 months and the maximum annuity reduction at age 62 is 26.667%.
•If the spouse was born in 1940*, her or his full retirement age** is 65 and 6 months and the maximum annuity reduction at age 62 is 27.50%.
•If the spouse was born in 1941*, her or his full retirement age** is 65 and 8 months and the maximum annuity reduction at age 62 is 28.333%.
•If the spouse was born in 1942*, her or his full retirement age** is 65 and 10 months and the maximum annuity reduction at age 62 is 29.167%.
•If the spouse was born in 1943 through 1954*, her or his full retirement age** is 66 and the maximum annuity reduction at age 62 is 30%.
•If the spouse was born in 1955*, her or his full retirement age** is 66 and 2 months and the maximum annuity reduction at age 62 is 30.833%.
•If the spouse was born in 1956*, her or his full retirement age** is 66 and 4 months and the maximum annuity reduction at age 62 is 31.667%.
•If the spouse was born in 1957*, her or his full retirement age** is 66 and 6 months and the maximum annuity reduction at age 62 is 32.50%.
•If the spouse was born in 1958*, her or his full retirement age** is 66 and 8 months and the maximum annuity reduction at age 62 is 33.333%.
•If the spouse was born in 1959*, her or his full retirement age** is 66 and 10 months and the maximum annuity reduction at age 62 is 34.167%.
•If the spouse was born in 1960* or later, her or his full retirement age** is 67 and the maximum annuity reduction at age 62 is 35%.
*A person attains a given age the day before her or his birthday. Consequently, someone born on January 1 is considered to have attained her or his given age on Dec. 31 of the previous year.
**If the employee has less than 10 years of railroad service and the spouse is already entitled to an age-reduced social security benefit, the age reduction in her or his tier I will be based on the age reduction applicable on the beginning date of the spouse’s social security benefit, even if the spouse is already of full retirement age on the beginning date of her or his railroad retirement annuity.
6. Are age reductions applied to employee disability annuities?
Employee annuities based on disability are not subject to age reductions except for employees with less than 10 years of service, but who have 5 years of service after 1995. Such employees may qualify for a tier I benefit before retirement age based on total and permanent disability, but only if they have a disability insured status (also called a “disability freeze”) under Social Security Act rules, counting both railroad retirement and social security-covered earnings. Unlike with a 10-year employee, a tier II benefit is not payable in these disability cases until the employee attains age 62. And, the employee’s tier II benefit will be reduced for early retirement in the same manner as the tier II benefit of an employee who retired at age 62 with less than 30 years of service.
7. Do these changes also affect survivor benefits?
Yes. The eligibility age for a full widow(er)’s annuity is also gradually rising from age 65 for those born before 1940 to age 67 for those born in 1962 or later. A widow(er), surviving divorced spouse or remarried widow(er) whose annuity begins at full retirement age or later will generally receive an annuity unreduced for early retirement. However, if the deceased employee received an annuity that was reduced for early retirement, a reduction would be applied to the tier I amount payable to the widow(er), surviving divorced spouse or remarried widow(er). The maximum age reductions will range from 17.1 percent to 20.36 percent, depending on the widow(er)’s date of birth. (These age reductions apply to both tier I and tier II.) For a surviving divorced spouse or remarried widow(er), the maximum age reduction is 28.5 percent. For a disabled widow(er), disabled surviving divorced spouse or disabled remarried widow(er), the maximum reduction is also 28.5 percent, even if the annuity begins at age 50.
8. Does the increase in full retirement age affect the age at which a person becomes eligible for Medicare benefits?
No. Although the age requirements for some unreduced railroad retirement benefits have risen just like the social security requirements, beneficiaries are still eligible for Medicare at age 65.
9. Do these increases in full retirement age also apply to the earnings limitations and work deductions governing benefit payments to annuitants who work after retirement?
Like social security benefits, railroad retirement tier I and vested dual benefits paid to employees and spouses, and tier I, tier II, and vested dual benefits paid to survivors are subject to deductions if an annuitant’s earnings exceed certain exempt amounts. These earnings limitations and work deductions apply to all age and service annuitants and spouses under full retirement age regardless of the employee’s years of service. Although employees retiring at age 60 with 30 years of service have no age reduction, these earnings limitations and work deductions still apply until they reach their full retirement age. These earnings limitations also apply to survivor annuitants, with the exception of disabled widow(er)s under age 60 and disabled children.
Likewise, while special earnings restrictions apply to employees entitled to disability annuities, these disability earnings restrictions cease upon a disabled employee annuitant’s attainment of full retirement age. This transition is effective no earlier than full retirement age even if the annuitant had 30 years of railroad service.
The additional deductions applied to the annuities of retired employees and spouses who work for their last pre-retirement nonrailroad employer continue to apply after the attainment of full retirement age.
10. How can individuals get more information about railroad retirement annuities and their eligibility requirements?
Employees should contact a field office of the RRB by calling toll-free (877) 772-5772 or via the RRB’s web site at 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.
The Railroad Retirement Board (RRB) is required by law to submit annual financial reports to Congress on the financial condition of the railroad retirement system and the railroad unemployment insurance system. These reports must also include recommendations for any financing changes which may be advisable in order to ensure the solvency of the systems. In June, the RRB submitted its 2013 reports on the railroad retirement and railroad unemployment insurance systems.
The following questions and answers summarize the findings of these reports.
1. What were the assets of the railroad retirement and railroad unemployment insurance systems last year?
As of Sept. 30, 2012, total railroad retirement system assets, comprising assets managed by the National Railroad Retirement Investment Trust and the railroad retirement system accounts at the Treasury, equaled $25.3 billion. The Trust was established by the Railroad Retirement and Survivors’ Improvement Act of 2001 to manage and invest railroad retirement assets. The cash balance of the railroad unemployment insurance system was $175.3 million at the end of fiscal year 2012.
2. What was the conclusion of the 2013 report on the financial condition of the railroad retirement system?
The overall conclusion was that, barring a sudden, unanticipated, large decrease in railroad employment or substantial investment losses, the railroad retirement system will experience no cash-flow problems during the next 25 years. The long-term stability of the system, however, is still uncertain. Under the current financing structure, actual levels of railroad employment and investment return over the coming years will largely determine whether corrective action is necessary.
3. What methods were used in forecasting the financial condition of the railroad retirement system?
The 2013 report projected the various components of income and outgo of the railroad retirement system under three employment assumptions, intended to provide an optimistic, moderate and pessimistic outlook, for the 25 calendar years 2013-2037. The projections of these components were combined and the investment income calculated to produce the projected balances in the railroad retirement accounts at the end of each projection year.
Projecting income and outgo under optimistic, moderate and pessimistic employment assumptions, the valuation indicated no cash-flow problems occur throughout the 25-year projection period under any of the assumptions.
4. How do the results of the 2013 report compare with those of the 2012 report?
The projected tier II tax rates for each calendar year are either the same or lower than in last year’s report. (Railroad retirement payroll taxes, like railroad retirement benefits, are calculated on a two-tier basis.) The projected combined account balances are higher at the end of each year, except under the moderate employment assumption where lower tax rates lead to lower account balances in 2034-2037.
The favorable comparison with last year was due to overall favorable economic and employment experience, with the largest impacts resulting from employment exceeding the RRB’s projections and actual investment return of approximately 13.9 percent exceeding the expected investment return of 7 percent in calendar year 2012.
5. Did the 2013 report on the financial condition of the railroad retirement system recommend any railroad retirement payroll tax rate changes?
The report did not recommend any change in the rate of tax imposed by current law on employers and employees.
6. What were the findings of the 2013 report on the financial condition of the railroad unemployment insurance system?
The RRB’s 2013 railroad unemployment insurance financial report was also generally favorable. Even as maximum benefit rates increase 42 percent (from $66 to $94) from 2012 to 2023, experience-based contribution rates are expected to keep the unemployment insurance system solvent, except for possible small, short-term cash flow problems in fiscal years 2015 and 2016 under the pessimistic assumption. However, projections show quick repayment of any loans by the end of each fiscal year.
Unemployment levels are the single most significant factor affecting the financial status of the railroad unemployment insurance system. However, the system’s experience-rating provisions, which adjust contribution rates for changing benefit levels, and its surcharge trigger for maintaining a minimum balance, help to ensure financial stability in the advent of adverse economic conditions.
Under experience-rating provisions, each employer’s contribution rate is determined by the RRB on the basis of benefit payments made to the railroad’s employees. Even under the report’s most pessimistic assumption, the average employer contribution rate remains well below the maximum throughout the projection period.
No surcharge is in effect in calendar year 2013, and the report predicts one will not be required in calendar 2014. A surcharge of 1.5 percent is likely in calendar years 2015 and 2016.
7. What methods were used to evaluate the financial condition of the railroad unemployment insurance system?
The economic and employment assumptions used in the unemployment insurance report corresponded to those used in the 2013 report on the financial condition of the retirement system. Projections were made for various components of income and outgo under each of the three employment assumptions, but for the period 2013-2023, rather than a 25-year period.
8. Did the 2013 report on the railroad unemployment insurance system recommend any financing changes to the system?
No financing changes were recommended at this time by the report.
Railroad employees and their spouses closing in on retirement will be able to learn the latest benefit information and application requirements as part of a new program announced by Labor Member of the U.S. Railroad Retirement Board Walter A. Barrows.