BMWE - News - News Release

Brotherhood of Maintenance of Way Employees
Affiliated with the A.F.L.-C.I.O. and C.L.C.

TO ALL LOCAL PRESIDENTS,
SECRETARY-TREASURERS AND
55&30 COMMITTEE CHAIRPERSONS
IN THE UNITED STATES

We have received additional information concerning the value of the retirement deal reached by the other rail unions and the carriers. Enclosed please find three documents: Railroad Retirement Board Labor Member V. M. Speakman's March 10, 2000 letter to me; Retirement Board Chief Actuary's memorandum of March 10 to Mr. Speakman, and Table 5 -- Financial Effect of Proposed Benefit Liberalization referred to in the Chief Actuary's memorandum.

        As you can see from Mr. Speakman's letter, the carriers' windfall from the deal is far greater than originally estimated. Each 1% of payroll is equal to $120 million, not the $100 million that we were first told. That means the carriers' share of the deal -- the money they will keep instead of putting it into our pension -- is at least $412.8 million, not $347 million per year as previously reported.

        The original value of the deal described as a "50/50 split" was set at 6.55%, with workers getting 3.08% in benefits and the carriers' getting 3.47% in tax cuts. From the current documents, it appears that the current value of the deal is 6.45%, with workers getting 3.01% and the carriers 3.44%.

        The two reasons for this change in value appear to be: 1) insurance coverage for early retirees was valued at $41 million by agreement between the carriers and the other unions, which would have been .41% when 1% of payroll equaled $100 million. However, because 1% of payroll is equal to $120 million (not $100 million), $41 million is equal to .34%; 2) the elimination of the supplemental annuity tax was originally valued at .47% and is now shown as .44%.

        A review of the document titled Table 5-Financial Effect of Proposed Benefit Liberalization gives us a much better picture of what the effect of different deals with the carriers might do for our members. The table below is how the division of the funds would look at various benefit levels referred to in the Board's Table 5 assuming the total value of the current deal is 6.45%.

        The amounts listed for employee benefits cost includes minimum widow guarantee (.61%), five-year vesting (.06%), elimination of retirement maximums (.16%), insurance coverage (.34%) and retirement age with 30 years of service.

Retirement With 30 Years of Service	Employee Benefits Cost	Carriers' Reduction to Pension
Age 60 (1.84%)	3.01% or $361.2 million	3.44% or $412.8 million
Age 59 (2.89%)	4.06% or $487.2 million	2.39% or $286.8 million
Age 58 (4.08%)	5.25% or $630 million	1.20% or $144 million
Age 57 (5.15%)	6.32 or $758.4 million	0.13% or $15.6 million

        BMWE disagrees with several components of the deal, but does support the minimum surviving spouse guarantee. There may be other items of more importance to all rail workers than the five year vesting and the elimination of retirement maximums, for example. What we are sure of is that unless the current deal is renegotiated we will never know what else may be possible.

        As we have stated all along, we understand that we will have to give the carriers some benefit in any deal involving our pensions. With that said, it must be understood that every penny paid into the pension fund is our money. Our pension is part of our total compensation package and when carrier pension contributions are reduced our total compensation package is also reduced. In short, we can not agree to giving the carriers over $412 million of our money for the benefits in the current deal.

        These numbers clearly demonstrate why the BMWE opposes the current deal and why all rail worker should do the same. We will schedule another round of conference calls with the early retirement committee chairs to discuss methods to mobilize the membership using these new numbers.

        If we can be of further assistance, contact the Organizing Department at (303) 280-1855.

                        President

Enclosures
cc:        Mr. W. E. LaRue
            Grand Lodge Officers
                and Appointees
            System Officers

UNITED STATES OF AMERICA
RAILROAD RETIREMENT BOARD
844 NORTH RUSH STREET
CHICAGO, ILLINOIS 60611-2092

Mr. Mac A Fleming, President
Brotherhood of Maintenance of Way Employes
26555 Evergreen Road, Suite 200
Southfield, MI 48076-4225

This is in reply to your letter of February 9, 2000, and our discussion in Florida.

Enclosed is the information you requested concerning the costs of providing for unreduced annuities at ages 59, 58, and 57 under the Railroad Retirement Act.

In your letter you also inquired concerning the value of 1 percent of payroll. We have confirmed that 1 percent of tier II payroll is equivalent to approximately $120 million, whether taken in benefit increases and/or in tax cuts.

We would be pleased to answer any questions you might have concerning this information.

This is in response to your request of the financial impact of providing unreduced tier 1 and tier 2 benefits to employees and their spouses at ages 57, 58, 59 and 60.

As you requested, we based our analysis on employment assumption 1 of the 1999 Section 502 report extended to a 75-year period and used an 8% interest rate. In addition to liberalized early retirement, we also assumed the benefit and financing charges illustrated in table 4 of my December 10, 1999, memorandum with the exception that (i) 5-year vesting applies to service after December 1995 and (ii) the tier 2 tax rate change is phased in from 21% in calendar year 2000, to 20.5% in 2001, 19.1% in 2002 and 18% thereafter.

Table 1 shows the impact of the proposed benefit liberalizations along with unreduced benefits for 30-year service employees and their spouses at age 60. Tables 2,3 and 4 show the impact of reducing the earliest retirement age for 30-year service employees and their spouses to age 59, 58 and 57 respectively. In each case, liberalized early retirement eligibility was assumed to be effective for employees retiring after December 31, 2000, and their spouses. In addition, health insurance benefits were assumed to be available at earliest eligibility.

Under the current plan, reduced benefits are available to aged widows at age 60. If reduced widow's benefits were to be provided at an earlier age to widows of 30-year service employees the cost would not be substantially higher. For example, providing reduced widow's benefits to aged widows of 30-year service employees at age 57 would cost less than 0.3% of tier 2 payroll.

A summary of the cost of the proposed benefit changes as a percentage of tier 2 payroll is shown in table 5.

Table 5. Financial Effect of Proposed Benefit Liberalizations
(Costs as a Percent of Tier 2 Payroll)

Minimum widow guarantee	0.61%
Five year vesting	0.06%
Eliminate RR maximum	0.16%
Eliminate supplemental annuity tax	0.44%
Liberalized early retirement age 60 with 30 years of service age 59 with 30 years of service age 58 with 30 years of service age 57 with 30 years of service	1.84% 2.89% 4.08% 5.15%

Note : Costs are based on employment assumption and an 8% interest rate, with an effective date of January 1, 2001.