Private rail pensions may reduce supplemental annuities

Railroad Retirement beneficiaries are reminded that receipt of a private railroad pension may reduce the amount of a supplemental annuity payable by the Railroad Retirement Board (RRB). The following questions and answers provide information on this subject and how 401(k) plans are affected by the Railroad Retirement Act (RRA).


1. What are the eligibility requirements for a supplemental annuity?
Monthly supplemental annuities are payable to employee annuitants with 25 or more years of rail service, a “current connection” with the railroad industry, and at least one month of creditable rail service before October 1981. Individuals with 30 years or more of rail service may begin receiving a supplemental annuity at age 60, whereas individuals with 25-29 years of service may do so at age 65. (Disabled annuitants under full retirement age, which is gradually rising to age 67 for those born in 1960 or later, must relinquish employment rights in order for a supplemental annuity to be paid by the RRB.) Monthly supplemental annuity rates vary based on an annuitant’s years of rail service. The maximum monthly supplemental annuity rate is $43.
2. How does the receipt of a private railroad pension affect payment of a supplemental annuity?
If a retired employee also receives a private pension funded entirely, or in part, by a railroad employer, the supplemental annuity is permanently reduced by the amount of the monthly pension that is based on the railroad employer’s contributions. However, if the employer reduces the pension for the employee’s entitlement to a supplemental annuity, the amount by which the pension is reduced is restored to the supplemental annuity (but does not raise it over the $43 maximum). There is no reduction for a pension paid by a railroad labor organization.
3. What if an employee elects to receive the pension in a lump-sum payment instead of as a monthly benefit?
If a retired employee elects to receive his or her pension in a lump-sum payment instead of as a monthly benefit, the supplemental annuity is reduced in the same way as it would be if the employee was receiving the monthly benefit. (If the lump sum is paid in installments, the installment payments are not considered monthly benefit payments, but part of the single lump-sum payment.)
4. Does the receipt of a 401(k) plan distribution reduce the amount of a supplemental annuity?
No. In Legal Opinion L-2014-2, issued January 13, 2014, the RRB’s general counsel determined that 401(k) plans should not be considered supplemental pension plans as defined by the Railroad Retirement Act and, therefore, employee supplemental annuities should not be reduced due to the receipt of 401(k) distributions.
5. Are employee contributions to a 401(k) plan subject to Railroad Retirement Tier I and Tier II payroll taxes?
Yes. Federal budget legislation enacted in 1989 and effective January 1, 1990, provided that employee contributions to 401(k) plans are subject to Railroad Retirement payroll taxes and brought the treatment of 401(k) plans under Railroad Retirement law into conformity with the treatment of such plans under Social Security law. Consequently, employee contributions to a 401(k) plan are also treated as creditable compensation for Railroad Retirement benefit purposes. (For example, an employee earning $40,000 a year, but who has 10% of his earnings deferred under a 401(k) plan, would have only $36,000 reported to the IRS as earnings subject to federal income tax. However, the entire $40,000 would be subject to Railroad Retirement payroll taxes and therefore creditable as compensation under the Railroad Retirement Act.)
6. How can a person get more information about how private rail pensions and 401(k) plan payments affect supplemental annuities?
More information is available on RRB.gov or by contacting an RRB field office. It is important to know that while nearly all of the RRB’s 53 field offices are physically closed to the public until further notice because of the COVID-19 outbreak, they remain accessible by email and phone. Customers are encouraged to send a secure email to their local office by accessing the Field Office Locator and clicking on the link at the bottom of their local office’s page. Customers who prefer talking to an RRB employee can call the agency’s toll-free number (1-877-772-5772); however, they may experience lengthy wait times due to increased call volume caused by COVID-19 related issues.


Medicare Part B premiums for 2021

The Centers for Medicare & Medicaid Services (CMS) has announced that the standard monthly Part B premium will be $148.50 in 2021, an increase of $3.90 from $144.60 in 2020. Some Medicare beneficiaries will pay less than this amount because, by law, Part B premiums for current enrollees cannot increase by more than the amount of the cost-of-living adjustment for Social Security (Railroad Retirement Tier I) benefits.
Since the cost-of-living adjustment is 1.3% in 2021, some Medicare beneficiaries will see an increase in their Part B premiums but still pay less than $148.50. The standard premium amount will also apply to new enrollees in the program. However, certain beneficiaries will continue to pay higher premiums based on their modified adjusted gross income.
The monthly Part B premiums that include income-related adjustments for 2021 will range from $207.90 to $504.90, depending on the extent to which an individual beneficiary’s modified adjusted gross income exceeds $88,000 (or $176,000 for a married couple). The highest rate applies to beneficiaries whose incomes exceed $500,000 (or $750,000 for a married couple). CMS estimates that about 7% of Medicare beneficiaries pay the larger income-adjusted premiums.
Beneficiaries in Medicare Part D prescription drug coverage plans pay premiums that vary from plan to plan. Part D beneficiaries whose modified adjusted gross income exceeds the same income thresholds that apply to Part B premiums also pay a monthly adjustment amount. In 2021, the adjustment amount ranges from $12.30 to $77.10.
The Railroad Retirement Board withholds Part B premiums, Part B income-related adjustments and Part D income-related adjustments from benefit payments it processes. The agency can also withhold Part C and D premiums from benefit payments if an individual submits a request to his or her Part C or D insurance plan.
The following tables show the income-related Part B premium adjustments for 2021. The Social Security Administration (SSA) is responsible for all income-related monthly adjustment amount determinations. To make the determinations, SSA uses the most recent tax return information available from the Internal Revenue Service. For 2021, that will usually be the beneficiary’s 2019 tax return information. If that information is not available, SSA will use information from the 2018 tax return.
Railroad Retirement and Social Security Medicare beneficiaries affected by the 2021 Part B and D income-related premiums will receive a notice from SSA by the end of the year. The notice will include an explanation of the circumstances when a beneficiary may request a new determination. Persons who have questions or would like to request a new determination should contact SSA after receiving their notice.
Additional information about Medicare coverage, including specific benefits and deductibles, can be found at www.medicare.gov.
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2021 PART B PREMIUMS

The monthly premium rates paid by beneficiaries who are married, but file a separate return from their spouses and who lived with their spouses at some time during the taxable year, are different. Those rates are as follows:

Beneficiaries who
file an individual

tax return with
income:
Beneficiaries
who file a joint tax
return with income:
Income
related
monthly
adjustment
amount
Total
monthly
Part B
premium
amount
Less than or equal to $88,000Less than or equal to $176,000$0.00$148.50
Greater than $88,000 and less than or equal to $111,000Greater than $176,000 and less than or equal to $222,000$59.40$207.90
Greater than $111,000 and less than or equal to $138,000Greater than $222,000 and less than or equal to $276,000$148.50$297.00
Greater than $138,000 and less than or equal to $165,000Greater than $276,000 and less than or equal to $330,000$237.60$386.10
Greater than $165,000 and less than or equal to $500,000Greater than $330,000 and less than or equal to $750,000$326.70$475.20
$500,000 and above$750,000 and above$356.40$504.90

The monthly premium rates paid by beneficiaries who are married, but file a separate return from their spouses and who lived with their spouses at some time during the taxable year, are different. Those rates are as follows:

Beneficiaries who are married, but file
a separate tax return, with income:
Income-related
monthly
adjustment
amount
Total monthly
Part B
premium amount
Less than or equal to $88,000$0.00$148.50
Greater than $88,000 and less than or equal to $412,000$326.70$475.20
$412,000 and above$356.40$504.90

RRB_seal_150pxRailroad retirement beneficiaries are reminded that receipt of a private railroad pension may reduce the amount of a supplemental annuity payable by the Railroad Retirement Board (RRB). The following questions and answers provide information on this subject, as well as how distributions from a 401(k) plan affect supplemental annuities, and whether railroad employee contributions to 401(k) plans are subject to railroad retirement payroll taxes.

1. What are the eligibility requirements for a supplemental annuity?

Individuals receiving a railroad retirement age and service, or disability annuity, can be paid a monthly supplemental annuity at age 60, if the employee has at least 30 years of creditable railroad service, or at age 65 with at least 25 years of service. (Disabled annuitants under full retirement age, which ranges from age 65 to 67, depending on the year of birth, must relinquish employment rights in order for a supplemental annuity to be paid by the RRB.) A “current connection” with the railroad industry is also required, as is at least one month of creditable rail service before October 1981. The maximum monthly supplemental annuity rate is $43.

2. What effect does the receipt of a private railroad pension have on the payment of a supplemental annuity?

If a retired employee also receives a private pension funded entirely or in part by a railroad employer, the supplemental annuity is permanently reduced by the amount of the monthly pension benefit that is based on the railroad employer’s contributions. However, if the employer reduces the pension for the employee’s entitlement to a supplemental annuity, the amount by which the pension is reduced is restored to the supplemental annuity (but does not raise it over the $43 maximum). There is no reduction for a pension paid by a railroad labor organization.

3. What if an employee elects to receive the pension in a lump-sum payment instead of as a monthly benefit?

If a retired employee elects to receive his or her pension in a lump-sum payment instead of as a monthly benefit, the supplemental annuity is reduced in the same way as it would be if the employee was receiving the monthly benefit. If the lump sum is paid in installments, the installment payments are not considered monthly benefit payments, but part of the single, lump-sum payment.

4. Does the receipt of a 401(k) plan distribution reduce the amount of a supplemental annuity?

No. In Legal Opinion L-2014-2, issued January 13, 2014, the RRB’s General Counsel determined that 401(k) plans should not be considered supplemental pension plans as defined by the Railroad Retirement Act and, therefore, employee supplemental annuities should not be reduced due to the receipt of 401 (k) distributions.

In accordance with the legal opinion, the RRB removed the 401(k) distribution reduction from the supplemental annuities of affected beneficiaries effective January 1, 2014, or the supplemental annuity beginning date, whichever date is later. Refunds of the amounts previously deducted for the 401(k) distribution reduction (beginning on the applicable date above) were issued to those beneficiaries in July 2015.

5. Are employee contributions to a 401(k) plan subject to railroad retirement Tier I and Tier II payroll taxes?

Yes. Federal budget legislation enacted in 1989 and effective January 1, 1990, provided that employee contributions to 401(k) plans are subject to railroad retirement payroll taxes and brought the treatment of 401(k) plans under railroad retirement law into conformity with the treatment of such plans under social security law. Consequently, employee contributions to a 401(k) plan are also treated as creditable compensation for railroad retirement benefit purposes. For example, an employee earning $40,000 a year, but who has 10 percent of his earnings deferred under a 401(k) plan, would have only $36,000 reported to the IRS as earnings subject to Federal income tax. However, the entire $40,000 would be subject to railroad retirement payroll taxes and therefore creditable as compensation under the Railroad Retirement Act.

6. How can a person get more information about the effect of private rail pensions and 401(k) plan payments on supplemental annuities?

Persons can contact an RRB field office for more information via the agency’s website, www.rrb.gov, or by calling toll-free at 1-877-772-5772. 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.