CHICAGO -- President Bush signed the Railroad Retirement and
Survivors' Improvement Act of 2001 into law on December 21, 2001,
the U.S. Railroad Retirement Board announced.
The
legislation liberalizes early retirement benefits for 30-year
employees, eliminates a cap on monthly retirement and disability
benefits, lowers the minimum service requirement from 10 years to 5
years of service if performed after 1995, and provides increased
benefits for some widow(er)s. The financing sections of the new law
provide for the investment of railroad retirement funds in
non-governmental assets, adjustments in the payroll tax rates paid
by employers and employees, and the repeal of a supplemental annuity
work-hour tax.
The following is a summary of the changes in
railroad retirement benefits and financing provided by the new law,
which was based on joint recommendations to Congress negotiated by a
coalition of rail labor organizations and rail freight
carriers.
Railroad Retirement Benefit Provisions
60/30
retirement. The new law amends the Railroad Retirement Act by
eliminating the early retirement reduction applied to the annuities
of 30-year employees retiring between the ages of 60 and 62 if their
annuities begin January 1, 2002, or later. The spouses of such
employees would also be eligible for full annuities at age 60. Full
60/30 benefits have not been payable to 30-year employees retiring
before age 62 since 1983 legislation reduced such early retirement
benefits.
This provision is not retroactive and not
applicable to 30-year employees who retired on the basis of age and
service prior to January 1, 2002, or to their spouses, even if their
spouses retire after 2001. However, if a disability annuitant is age
60 and has 30 years' service, his or her spouse can now receive an
unreduced annuity as early as age 60 if the spouse's annuity
beginning date is January 1, 2002, or later.
Maximum
provision. The new law eliminates, effective January 1, 2002, a
maximum on the amount of combined monthly employee and spouse
benefit payments which had been intended to prevent benefits from
exceeding an employee's creditable earnings prior to retirement.
This maximum provision had the unintended effect of reducing
benefits for former employees with no earnings, or low earnings, in
the 10-year period prior to retirement, and for long-service
employees with moderate earnings.
While not retroactive, the
amendment will prospectively increase benefits, effective January 1,
2002, for almost 2,600 employee and 12,000 spouse annuitants on the
Board's rolls whose benefits were reduced by the maximum provision
prior to 2002.
In 2001, the average monthly employee benefit
reduction under the maximum provision was $164, and the average
spouse reduction was $78. The removal of any benefit reductions
applied to affected annuitants should be completed by June 2002.
Such annuitants can expect to receive accrual payments in late May
2002 retroactive to January, and increased regular monthly payments
reflecting their new rates beginning with the monthly payment due on
June 1, 2002. Notices are being sent by the Board to all affected
annuitants in January 2002 advising them accordingly.
Notices will also be sent in January to employees whose
spouses may have been previously advised by the Board to defer
filing for spouse benefits because of the adverse effects of the
maximum provision, as their spouses would now want to consider
filing for railroad retirement benefits.
Basic service
requirement. The new law lowers the minimum eligibility
requirement for regular railroad retirement annuities from 10 years
(120 months) of creditable railroad service to five years (60
months) of creditable railroad service for those with five years of
service rendered after 1995. Benefits payable on the basis of this
provision are not retroactive and are not payable earlier than
January 1, 2002.
Also, for those with less than 10 years of
service, additional earnings credits acquired under social security
coverage would be required for a tier I benefit. A tier II benefit
would be payable even if the employee never worked under social
security coverage. Additional requirements apply in disability
cases. In addition, a deceased employee with five years' service
after 1995 must still have had a "current connection" with the rail
industry in order for survivor annuities to be payable by the Board
under this provision, rather than the Social Security
Administration.
Anyone with five years of service performed
after 1995, who was previously denied benefits because of the
10-year service requirement, will want to contact a Board office.
Widow(er)s' benefits. The new law establishes an
"initial minimum amount" which is based on the two-tier annuity
amount that would have been payable to the railroad employee at the
time the widow(er)'s annuity is awarded. The initial minimum amount
is computed with a widow(er)'s tier II amount equal to 100 percent
of the employee's tier II amount. Under prior law, the widow(er)'s
tier II amount was equal to 50 percent of the employee's tier II
amount; only the tier I amount equaled 100 percent. Widow(er)s'
annuities computed on the basis of the new initial minimum amount
will not be adjusted for annual cost-of-living increases until the
annuity amount is exceeded by the annuity amount the widow(er) would
have been paid under prior law, with all interim cost-of-living
increases otherwise payable.
This provision is effective
February 1, 2002, and is not payable retroactively. The Railroad
Retirement Board estimates that about 20 to 25 percent of the
widow(er)s on its rolls in 2001 will see some increase in their
annuity.
This provision applies to widow(er)s on the rolls
before the effective date only if the annuity the widow(er) is
currently receiving is less than she or he would have received had
the new law been in effect on the date the widow(er)'s annuity
began. Most widow(er)s' annuities awarded before October 1986 will
not be increased. Many of the widow(er)s' annuities currently being
paid are already higher than the annuity that would be payable under
the new law because of previous cost-of-living
adjustments.
Widow(er)s affected by this change can expect to
receive any accrual payments, retroactive to February, in late April
of 2002, and increased regular monthly payments reflecting their new
rates beginning with the payment they receive on May 1, 2002.
Letters will be sent in January to affected widow(er)s on the
Board's rolls, advising them as to whether they will receive an
increase. As a result, widow(er)s do not need to take any action or
contact the Board.
Railroad Retirement Financing Provisions
Investment
changes. The new law provides for the transfer of railroad
retirement funds from the Railroad Retirement Accounts to a new
National Railroad Retirement Investment Trust, whose Board of seven
trustees is empowered to invest Trust assets in non-governmental
assets, such as equities and debt, as well as in governmental
securities.
The Trust will not be treated as an agency or
instrumentality of the Federal Government. Its Board of Trustees
will be comprised of seven members: three members selected by rail
labor to represent the interests of labor; three members likewise
selected by rail management to represent management interests; and
one independent member selected by a majority of the other six
members. The new law also provides that if the parties involved
cannot agree on the selection of Trustees within 60 days of the
law's enactment date, an impartial umpire shall, at the petition of
a party to the dispute, be appointed by the District Court of the
United States for the District of Columbia. The Trustees will be
appointed only from among persons who have experience and expertise
in the management of financial investments and pension plans. The
Trustees will be subject to reporting and fiduciary standards
similar to those under the Employee Retirement Income Security
Act.
The new law also allows for railroad retirement benefit
payments in the future to be issued by a qualified non-governmental
financial institution, rather than the Treasury Department. The
selection of the financial institution would be made by the Railroad
Retirement Board, after consulting with the Board of Trustees and
the Secretary of the Treasury. Railroad retirement payments will
continue to be processed through the U.S. Treasury in the meantime.
Effect on payroll tax rates. The new law reduces the
tier II tax rates on rail employers, including rail labor unions, in
calendar years 2002 and 2003, and beginning with 2004 provides
automatic adjustments in the tier II tax rates for both employers
and employees. It also repeals the supplemental annuity work-hour
tax rate paid by employers, beginning with calendar year 2002.
The tier II tax rate on rail employers and rail labor
organizations is reduced from 16.10 percent to 15.60 percent in 2002
and to 14.20 percent in 2003, but the tier II earnings base is not
changed; and for 2002, that amount remains at $63,000. The tier II
tax rate for rail employee representatives will be 14.75 percent in
calendar year 2002 and 14.20 percent in 2003.
While there
will be no change in the tier II tax rate of 4.90 percent on
employees in the years 2002 and 2003, beginning with the taxes
payable for calendar year 2004 tier II taxes on both employers and
employees will be based on the ratio of certain asset balances to
the sum of benefits and administrative expenses (the average account
benefits ratio). Depending on the average account benefits ratio,
tier II taxes for employers will range between 8.20 percent and
22.10 percent, while the tier II tax rate for employees will be
between 0 percent and 4.90 percent.
The new law does not
affect tier I social security equivalent tax rates. The tier I tax
on employees and employers remains the same as for social security
covered employees and employers.
Other revenue
provisions. While supplemental railroad retirement annuities
provided by the Railroad Retirement Act continue to be due and
payable, the new law, in addition to repealing the supplemental
annuity work-hour tax, also eliminates the separate Supplemental
Annuity Account under the Railroad Retirement Act. Supplemental
annuities provided under the Railroad Retirement Act will now be
funded through the new National Railroad Retirement Investment
Trust.
No changes were effected in railroad unemployment
insurance taxes on employers.
On a final note, the Board is
making every effort to notify by mail all parties affected by this
legislation as soon as possible. Therefore patience on the part of
annuitants would be appreciated when contacting Board offices, as a
higher than usual volume of calls is expected as a result of the
passage of this legislation.
Railroad Retirement Board
offices are open to the public Monday through Friday, except on
Federal holidays. Persons can find the address and telephone number
of the Board office serving their area by calling the Board's
automated toll-free Help Line at 1-800-808-0772, or from the Board's
Web site at www.rrb.gov. E-mail inquiries about this legislation can
be sent to the RRB by going to the Board's Web site. Under "Latest
News!" on the opening page, click on "Send us a secure message about
the new Law or its effect on you."