Railroad retirement annuities, like social security benefits, increased in January 1998 on the basis of the rise in the Consumer Price Index (CPI) during the 12 months preceding October 1997.

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 2.1 percent, which is the percentage of the CPI rise. Vested dual benefit payments and supplemental annuities also paid by the Railroad Retirement Board are not adjusted for the CPI rise.

In January 1998, the average regular railroad retirement employee annuity increased $20 a month to $1,259 and the average of combined benefits for an employee and spouse increased $29 a month to $1,837. For aged widow(er)s, the average survivor annuity increased $14 a month to $754.

If a railroad retirement annuitant also receives a social security benefit, the increased tier I benefit is reduced by the increased social security benefit. Tier II cost-of-living increases are not reduced by social security increases.

Retiree Earnings Limits to Rise

Railroad retirement annuitants who work after retirement can earn more in 1998 without having their benefits reduced, as a result of increases in earnings limits indexed to average national wage increases.

Railroad retirement annuities generally consist of tier I and tier II benefits and may include certain vested dual benefit payments and/or a supplemental benefit. Like social security benefits, railroad retirement tier I benefits and vested dual benefits paid to employees and spouses, and tier I, tier II and vested dual benefits paid to survivors, are subject to earnings deductions if post-retirement earnings exceed certain exempt amounts.

For those under age 65, the earnings deduction is $1 in benefits for every $2 of earnings over the exempt amount. For those ages 65-69, the deduction is $1 for every $3 of earnings over the exempt amount.

Earnings consist for this purpose of all wages received for services rendered, plus any net earnings from self-employment. Interest, dividends, certain rental income or income from stocks, bonds, or other investments are not considered earnings for this purpose.

Retired employees and spouses, regardless of age, who work for their last pre-retirement non-railroad employer are also subject to an earnings deduction, in their tier II and supplemental benefits, of $1 for every $2 in earnings up to a maximum reduction of 50 percent. This earnings restriction does not change from year to year and does not allow for an exempt amount.

A spouse benefit is subject to reductions not only for the spouse's earnings, but also for the earnings of the employee, regardless of whether the earnings are from service for the last pre-retirement non-railroad employer or other post-retirement employment.

Special work restrictions applicable to disability annuitants also do not change in 1998.

Regardless of age and/or earnings, no railroad retirement annuity is payable for any month in which an annuitant (retired employee, spouse or survivor) works for a railroad employer or railroad union.

Working After Retirement

Because of a shortage of rail employees in certain occupations, a number of retired rail employees have recently asked the Railroad Retirement Board what effect a temporary or part-time return to railroad work would have on their annuities.

The Board advises that neither a regular nor a supplemental annuity is payable under the Railroad Retirement Act for any month in which a retired employee works for a railroad employer, including labor organizations. This is true even if only one day's service is performed during the month. In addition, a spouse annuity is not payable by the Board for any month in which the employee's annuity is not payable, or for any month in which the spouse works for a railroad employer or a railroad union.

Therefore, when a retired employee works, even on a part-time basis, for a railroad employer, both the employee and his or her spouse forfeit their railroad retirement annuities for the entire month in which the compensated service was performed.

Some retired employees have also raised the issue of whether returning to certain types of work for a railroad could be considered "consultant' service. The annuity of a retiree considered a consultant or contractor is subject to earnings deductions for net self-employment earnings, rather than suspension. However, this depends on whether or not the Railroad Retirement Board considers the person to be truly an independent contractor or consultant, or whether the Board considers the person to be functioning as an employee.

While the Board generally looks at these cases on an individual basis taking into account the particular circumstances of each case, a person performing service in certain types of occupations is almost always considered by the Board to be an employee, rather than an independent contractor or consultant; an example would be a person performing service as a locomotive engineer.

In any case, an annuitant needing to know whether contractor or consultant service is valid self-employment should contact the Board well in advance of making a commitment, so as to be sure of the effect on railroad retirement benefit payments.

For more information, retirees should contact the nearest Board field office. Most Board offices are open to the public from 9:00 a.m. to 3:30 p.m. Monday through Friday. The address of the nearest field office can be located by visiting the Board's Web Site at http://www.rrb.gov, looking in the telephone directory under "United States Government," or checking with a union representative, rail employer, local post office or Federal Information Center.

1998 Railroad Retirement Taxes

While regular railroad retirement tax rates are not changed for 1998, the amounts of compensation subject to these payroll taxes increased in January 1998 as a result of indexing to average national wage increases.

The railroad retirement tier I tax rate of 7.65 percent for employers and employees, which 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, remains the same. However, the maximum amount of an employee's earnings subject to the 6.2 percent rate will increase to $68,400 in 1998 from $65,400 in 1997. There is no maximum on earnings subject to the 1.45 percent Medicare rate; all of an employee's compensation is subject to the Medicare tax.

The maximum amount of earnings subject to the railroad retirement tier II tax of 4.90 percent on employees, and 16.10 percent on employers, increased to $50,700 from $48,600.

In 1997, the regular railroad retirement tax on an employee earning $65,400 was $7,384.50 and the employer's regular railroad retirement tax on such an employee was $12,827.70. In 1998, the railroad retirement tax on an employee earning $68,400 will be $7,716.90 compared to $5,232.60 under social security, and the employer's tax will be $13,395.30.

The rate of the supplemental railroad retirement annuity tax paid solely by rail employers is determined quarterly by the Railroad Retirement Board. The rate for all four quarters of 1997 has been 35 cents per work-hour.

Employers, but not employees, also pay railroad unemployment insurance taxes, which are experience rated by employer. The basic rates range from a minimum of 0.65 percent to a maximum of 12 percent. However, as the Railroad Unemployment Insurance Account balance was less than $100 million but more than $50 million on June 30, 1997, a surcharge of 1.5 percent will be added to the basic tax rates in 1998, but will not increase the maximum rate. Consequently, in 1998, the unemployment insurance tax rates on railroad employers will range from 2.15 percent (the minimum basic rate of 0.65 percent plus the 1.5 percent surcharge) to a maximum of 12 percent , on monthly employee compensation up to $925.

In 1998, 71 percent of covered employers will be assessed a rate of 2.15 percent, which is $19.89 per month for each employee with earnings of $925 or more per month, and 11 percent will be assessed a rate of 12 percent, which is $111 per month for each employee with earnings of $925 or more per month.

The 1.5 percent surcharge does not, however, apply to new employers in 1998, and new employers will initially pay a tax of 1.18 percent, which represents the average rate paid by all employers in the period of 1994-1996.