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, 1998, as
well as the differences in age requirements and payroll taxes under the two systems.
How do the average monthly Railroad Retirement and Social Security benefits
paid to retired employees and spouses compare?
The average age annuity being paid by the Railroad Retirement Board at the end of
Fiscal Year 1998 to career rail employees was $1,665 a month, and for all retired rail
employees the average was $1,265. The average age retirement benefit begin paid under
Social Security was about $770 a month. Spouse benefits averaged $500 a month under
Railroad Retirement compared to $380 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 1998, regular annuity awards averaged about
$2,120 a month while monthly benefits awarded to workers retiring at age 65 under Social
Security averaged about $980. If spouse benefits are added, the combined benefits for the
employee and spouse would approximate $3,015 under Railroad Retirement coverage, compared
to about $1,470 under Social Security. Adding a supplemental annuity to the railroad
family's benefit increases average total benefits for current career rail retirees to
about $3,050 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 1998 were awarded about $1,770 a month on the average while awards for
disabled workers under Social Security averaged about $740.
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
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 1999, the maximum total monthly benefit initially payable to an employee and spouse
under the Railroad Retirement Act is $4,085. Under the Social Security Act the maximum
monthly amount payable to an employee retiring in 1999 at age 65, and his or her spouse,
is $2,059.
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 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 prior to full
retirement age--currently 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 that are not available under Railroad
Retirement?
Social Security does pay certain types of benefits that 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 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 that 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. At the end of Fiscal Year 1998, the average annuity being paid to all
aged and disabled widow)er)s averaged $765 a month, compared to $725 under Social
Security.
Benefits awarded by the Board at the end of Fiscal Year 1998 to aged and
disabled widow(er)s of railroaders averaged about $920 a month, compared to about $685
under Social Security.
The annuities being paid at the end of Fiscal Year 1998 to widowed mothers/fathers
averaged $955 a month and children's annuities averaged $645, compared to $535 and $500 a
month for widowed mothers/fathers and children, respectively, under Social Security.
Those awarded at the end of Fiscal Year 1998 were $825 a month for widowed
mothers/fathers and $770 a month for children under Railroad Retirement, compared to $525
and $505 for widowed mothers/fathers and children, respectively, 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 is generally payable only if survivor annuities
are not immediately due upon an employee's death. The Social Security lump-sum 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 $920.
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 no 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 $72,600 in 1999 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
$53,700 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 27 cents per work hour
through March 1999.
How much are regular Railroad Retirement taxes for an employee earning $72,600
in 1999 compared to Social Security taxes?
The maximum amount of regular Railroad Retirement taxes that an employee earning
$72,600 can pay in 1999 is $8,185.20, compared to $5,553.90 under Social Security. For
railroad employers, the maximum annual regular retirement taxes on an employee earning
$72,600 are $14,199.60, compared to $5,553.90 under Social Security. Employees earning
over $72,600, and their employers, will pay more in retirement taxes than the above
amounts because the Medicare hospital insurance tax is applied to all earnings. |