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 at the close of the
fiscal year ending September 30, 1999, as well as the differences in
age requirements and payroll taxes under the two systems. Railroad
retirement benefit amounts reflect cases reduced for any dual
entitlement.
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 1999 to career rail employees was $1,705 a
month, and for all retired rail employees the average was $1,300. The
average age retirement benefit being paid under social security was
about $785 a month. Spouse benefits averaged $515 a month under
railroad retirement compared to $390 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 1999,
regular annuity awards averaged about $2,200 a month while monthly
benefits awarded to workers retiring at age 65 under social security
averaged about $1,005. If spouse benefits are added, the combined
benefits for the employee and spouse would approximate $3,130 under
railroad retirement coverage, compared to about $1,505 under social
security. Adding a supplemental annuity to the railroad family's
benefit increases average total benefits for current career rail
retirees to about $3,165 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 1999 were awarded about $1,845 a
month on the average while awards for disabled workers under social
security averaged about $770.
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 2000, the maximum total monthly benefit initially payable to an
employee and spouse under the Railroad Retirement Act is $4,315. Under
the Social Security Act the maximum monthly amount payable to an
employee retiring in 2000 at age 65, and his or her spouse, is $2,149.
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?
Under current law, 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.
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 full retirement age, just as they are applied under
social security. As under social security, the age at which full
benefits are payable is increasing in gradual steps until it reaches
age 67 in the year 2022. This affects people born in 1938 and later.
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
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 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 1999, the
average annuity being paid to all aged and disabled widow(er)s
averaged $790 a month, compared to $745 under social security.
Benefits awarded by the Board at the end of Fiscal Year 1999 to
aged and disabled widow(er)s of railroaders averaged about $925 a
month, compared to about $665 under social security.
The annuities being paid at the end of Fiscal Year 1999 to widowed
mothers/fathers averaged $990 a month and children's annuities
averaged $660, compared to $550 and $510 a month for widowed
mothers/fathers and children, respectively, under social security.
Those awarded at the end of Fiscal Year 1999 were $1,090 a month
for widowed mothers/fathers and $855 a month for children under
railroad retirement, compared to $555 and $530 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 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 $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 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 $76,200 in 2000
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 $56,700 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 26½ cents per work hour
through March 2000.
How much are regular railroad retirement taxes for an employee
earning $76,200 in 2000 compared to social security taxes?
The maximum amount of regular railroad retirement taxes that an
employee earning $76,200 can pay in 2000 is $8,607.60, compared to
$5,829.30 under social security. For railroad employers, the maximum
annual regular retirement taxes on an employee earning $76,200 are
$14,958 compared to $5,829.30 under social security. Employees earning
over $76,200 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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