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 differences in railroad retirement and
social security benefits payable at the close of the fiscal year ending September 30,
1997, 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 1997 to career rail employees was $1,620 a month, and for all retired rail
employees the average was $1,225. The average age retirement benefit being paid under
social security was about $750 a month. Spouse benefits averaged $485 a month under
railroad retirement compared to $370 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 1997, regular annuity awards averaged about
$2,035 a month while monthly benefits awarded to workers retiring at age 65 under social
security averaged about $955. If spouse benefits are added, the combined benefits for the
employee and spouse would approximate $2,915 under railroad retirement coverage, compared
to about $1,430 under social security. Adding a supplemental annuity to the railroad
family's benefit increases average total benefits for current career rail retirees to
about $2,950 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 1997 were awarded about $1,720 a month on the average, while awards for
disabled workers under social security averaged about $720.
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 1998, the maximum total monthly benefit initially payable to an employee and spouse
under the Railroad Retirement Act is $3,880. Under the Social Security Act
the maximum monthly amount payable to an employee retiring in 1998 at age 65, and his or
her spouse is $2,013.
However, 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 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 age 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 in the year
2022.
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 children's benefits when an
employee is disabled, retired or deceased. Under current law, the Railroad Retirement
Act only provides children's 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 employee's 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 1997 to aged and disabled
widows and widowers of railroaders averaged about $900 a month, compared to about $685
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 employee's 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 employee's pre-1975 railroad retirement taxes, after subtraction
of any benefits previously paid on the basis of the employee's service. However, an
employee's 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 $68,400 in 1998 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
$50,700 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 has been set at 35 cents per work hour
through June 1998.
How much are regular railroad retirement taxes for an employee earning $68,400
in 1998 compared to social security taxes?
The maximum amount of regular railroad retirement taxes that an employee earning
$68,400 can pay in 1998 is $7,716.90, compared to $5,232.60 under social security. For
railroad employers, the maximum annual regular retirement taxes on an employee earning
$68,400 are $13,395.30, compared to $5,232.60 under social security. Employees earning
over $68,400, and their employers, will pay more in retirement taxes than the above
amounts because the Medicare hospital insurance tax is applied to all earnings. |