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
substantially higher than social security benefits. The following questions and
answers show the difference in railroad retirement and
social security benefits payable at the close of the
fiscal year ending September 30, 1996, as well as the
differences in age requirements and payroll taxes under
the two systems.
How much are the
average monthly railroad retirement and social security
benefits paid to retired employees and spouses?
The average age annuity
being paid by the Railroad Retirement Board at the end of
fiscal year 1996 to career rail employees was $1,565 a
month, and for all retired rail employees the average was
$1,175. The average age retirement benefit being paid
under social security was about $725. Spouse benefits
averaged $470 a month under railroad retirement compared
to $360 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
industry with 25 or more years of service.
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. For career
railroad employees retiring at the end of fiscal year
1996, regular annuity awards averaged about $1,945 a
month while monthly benefits awarded to workers retiring
at age 65 under social security averaged about $920. If
spouse benefits are added, the combined benefits for the
employee and spouse would approximate $2,760 under
railroad retirement coverage, compared to about $1,375
under social security. Adding a supplemental annuity to
the railroad familys benefit increases average
total benefits for current career rail retirees to about
$2,795 a month.
How much are the
disability benefits currently awarded?
Disabled railroad workers
retiring directly from the railroad industry at the end
of fiscal year 1996 were awarded about $1,615 a month on
the average, while awards for disabled workers under
social security averaged about $695.
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 to 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.
What are the maximum
amounts payable to recent retirees?
In January 1997, the
maximum total benefit initially payable to an employee
and spouse under the Railroad Retirement Act is $3,605.
Under the Social Security act, if an employee began work
in January 1955, continuously earned the maximum
creditable toward retirement benefits each year through
1996, and retired January 1, 1997, at age 65, the monthly
amount payable to that employee and his or her spouse as
of January 1997 is $1,989.
However, such maximum
benefits are payable to relatively few families, as very
few employees consistently earn the maximum amount
creditable each year throughout their careers.
Can railroaders retire
at earlier ages than workers under social security?
Railroad employees with
30 or more years of service are eligible for regular
annuities based on age and service at age 60. Certain
early retirement reductions are applied to such annuities
awarded before the age 62, but only to the portion of the
annuity approximating a social security benefit, and no
age reductions are applied to the annuities of 30-year
employees retiring at age 62. 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 before age 65.
Rail employees with 10 to
29 years of creditable service are eligible for regular
annuities based on age and service at age 62. Early
retirement annuity reductions are applied to such
annuities awarded before age 65, just as they are applied
under social security. As under social security, starting
in the year 2000, the age at which full benefits are
payable will increase in gradual steps until it reaches
age 67.
Reduced benefits will
still be payable at age 62 but the maximum reduction for
employees will be 30 percent rather than 20 percent by
the year 2022. However, the railroad retirement annuity
reduction will be less if the employee had any rail
service before August 12, 1983. Also, these changes will
not affect rail employees who retire at age 62 with 30
years service.
Does social security
offer any benefits which are not available under railroad
retirement?
Social security does pay
certain types of benefits which are not available under
railroad retirement. For example, social security
provides childrens benefits when an employee is
disabled, retired or deceased. Under current law, the
Railroad Retirement Act only provides childrens
benefits if the employee is deceased.
The Railroad Retirement
Act does include 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 which 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 employees annuity can be
increased to reflect what social security would pay the
family.
How much are monthly
benefits for survivors under railroad retirement and
social security?
Survivor benefits are
generally higher if payable by the Board rather than
social security. Those awarded by the Board at the end of
fiscal year 1996 to aged and disabled widows and widowers
of railroaders averaged about $875 a month, compared to
about $670 under social security.
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 employees 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 service before 1975, the average railroad
retirement lump-sum benefit payable is about $910.
The social security
lump-sum is generally only payable to the widow or
widower 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 or widower, the lump-sum may be paid to
the funeral home or the payer of the funeral expenses.
The railroad retirement
system also provides, under certain conditions, a
residual lump-sum death benefit which insures that a
railroad family receives at least as much in benefits as
the employee paid in railroad retirement taxes before
1975. This benefit is, in effect, a refund of an
employees pre-1975 railroad retirement taxes, after
subtraction of any benefits previously paid on the basis
of the employees service. However, an
employees benefits generally exceed taxes within
two years; consequently, this death benefit is seldom
payable.
How do railroad
retirement and social security taxes compare?
Railroad retirement tier
I and Medicare taxes on employees and employers are the
same as social security taxes, with a rate of 7.65
percent, consisting of 6.2 percent on earnings up to
$65,400 in 1997 and 1.45 percent for Medicare hospital
insurance on all earnings. Rail employees pay an
additional tier II tax of 4.90 percent on earnings up to
$48,600 a year, while their employers pay tier II taxes
of 16.10 percent. Rail employers also pay a separate
work-hour tax to finance the railroad retirement
supplemental annuity program. The rate is determined
quarterly and is 354 per work hour as of January 1, 1997.
How much are regular
railroad retirement taxes for an employee earning $65,400
in 1997 compared to social security taxes?
The maximum amount of
regular railroad retirement taxes that an employee
earning $65,400 can pay in 1997 is $7,384.50, compared to
$5,003.10 under social security. For railroad employers,
the maximum annual regular retirement taxes on an
employee earning over $65,400 are $12,827.70, compared to
$5,003,10 under social security. Employees earning over
$65,400 and their employers, will pay more in retirement
taxes than the above amounts because the Medicare
hospital insurance tax is applied to all earnings.
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