[House Report 107-82]
[From the U.S. Government Publishing Office]
107th Congress Rept. 107-82
HOUSE OF REPRESENTATIVES
1st Session Part 1
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RAILROAD RETIREMENT AND SURVIVORS' IMPROVEMENT ACT OF 2001
_______
May 24, 2001.--Ordered to be printed
_______
Mr. Young of Alaska, from the Committee on Transportation and
Infrastructure, submitted the following
R E P O R T
[To accompany H.R. 1140]
[Including cost estimate of the Congressional Budget Office]
The Committee on Transportation and Infrastructure, to whom
was referred the bill (H.R. 1140) to modernize the financing of
the railroad retirement system and to provide enhanced benefits
to employees and beneficiaries, having considered the same,
report favorably thereon with an amendment and recommend that
the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Railroad Retirement
and Survivors' Improvement Act of 2001''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--AMENDMENTS TO RAILROAD RETIREMENT ACT OF 1974
Sec. 101. Expansion of widow's and widower's benefits.
Sec. 102. Retirement age restoration.
Sec. 103. Vesting requirement.
Sec. 104. Repeal of railroad retirement maximum.
Sec. 105. Investment of railroad retirement assets.
Sec. 106. Elimination of supplemental annuity account.
Sec. 107. Transfer authority revisions.
Sec. 108. Annual ratio projections and certifications by the Railroad
Retirement Board.
TITLE II--AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986
Sec. 201. Amendments to the Internal Revenue Code of 1986.
Sec. 202. Exemption from tax for Railroad Retirement Investment Trust.
Sec. 203. Repeal of supplemental annuity tax.
Sec. 204. Employer, employee representative, and employee tier 2 tax
rate adjustments.
TITLE I--AMENDMENTS TO RAILROAD RETIREMENT ACT OF 1974
SEC. 101. EXPANSION OF WIDOW'S AND WIDOWER'S BENEFITS.
(a) In General.--Section 4(g) of the Railroad Retirement Act of 1974
(45 U.S.C. 231c(g)) is amended by adding at the end the following new
subdivision:
``(10)(i) If for any month the unreduced annuity provided under this
section for a widow or widower is less than the widow's or widower's
initial minimum amount computed pursuant to paragraph (ii) of this
subdivision, the unreduced annuity shall be increased to that initial
minimum amount. For the purposes of this subdivision, the unreduced
annuity is the annuity without regard to any deduction on account of
work, without regard to any reduction for entitlement to an annuity
under section 2(a)(1) of this Act, without regard to any reduction for
entitlement to a benefit under title II of the Social Security Act, and
without regard to any reduction for entitlement to a public service
pension pursuant to section 202(e)(7), 202(f)(2), or 202(g)(4) of the
Social Security Act.
``(ii) For the purposes of this subdivision, the widow or widower's
initial minimum amount is the amount of the unreduced annuity computed
at the time an annuity is awarded to that widow or widower, except
that--
``(A) in subsection (g)(1)(i) `100 per centum' shall be
substituted for `50 per centum'; and
``(B) in subsection (g)(2)(ii) `130 per centum' shall be
substituted for `80 per centum' both places it appears.
``(iii) If a widow or widower who was previously entitled to a
widow's or widower's annuity under section 2(d)(1)(ii) of this Act
becomes entitled to a widow's or widower's annuity under section
2(d)(1)(i) of this Act, a new initial minimum amount shall be computed
at the time of award of the widow's or widower's annuity under section
2(d)(1)(i) of this Act.''.
(b) Effective Date.--
(1) In general.--The amendment made by this section shall
take effect on the first day of the first month that begins
more than 30 days after enactment, and shall apply to annuity
amounts accruing for months after the effective date in the
case of annuities awarded--
(A) on or after that date; and
(B) before that date, but only if the annuity amount
under section 4(g) of the Railroad Retirement Act of
1974 (45 U.S.C. 231c(g)) was computed under such
section, as amended by the Omnibus Budget
Reconciliation Act of 1981 (Public Law 97-35; 95 Stat.
357).
(2) Special rule for annuities awarded before the effective
date.--In applying the amendment made by this section to
annuities awarded before the effective date, the calculation of
the initial minimum amount under new section 4(g)(10)(ii) of
the Railroad Retirement Act of 1974 (45 U.S.C.
231c(g)(10)(ii)), as added by subsection (a), shall be made as
of the date of the award of the widow's or widower's annuity.
SEC. 102. RETIREMENT AGE RESTORATION.
(a) Employee Annuities.--Section 3(a)(2) of the Railroad Retirement
Act of 1974 (45 U.S.C. 231b(a)(2)) is amended by inserting after
``(2)'' the following new sentence: ``For purposes of this subsection,
individuals entitled to an annuity under section 2(a)(1)(ii) of this
Act shall, except for the purposes of recomputations in accordance with
section 215(f) of the Social Security Act, be deemed to have attained
retirement age (as defined by section 216(l) of the Social Security
Act).''.
(b) Spouse and Survivor Annuities.--Section 4(a)(2) of the Railroad
Retirement Act of 1974 (45 U.S.C. 231c(a)(2)) is amended by striking
``if an'' and all that follows through ``section 2(c)(1) of this Act''
and inserting ``a spouse entitled to an annuity under section
2(c)(1)(ii)(B) of this Act''.
(c) Conforming Repeals.--Sections 3(a)(3), 4(a)(3), and 4(a)(4) of
the Railroad Retirement Act of 1974 (45 U.S.C. 231b(a)(3), 231c(a)(3),
and 231c(a)(4)) are repealed.
(d) Effective Dates.--
(1) Generally.--Except as provided in paragraph (2), the
amendments made by this section shall apply to annuities that
begin to accrue on or after January 1, 2002.
(2) Exception.--The amount of the annuity provided for a
spouse under section 4(a) of the Railroad Retirement Act of
1974 (45 U.S.C. 231c(a)) shall be computed under section
4(a)(3) of such Act, as in effect on December 31, 2001, if the
annuity amount provided under section 3(a) of such Act (45
U.S.C. 231b(a)) for the individual on whose employment record
the spouse annuity is based was computed under section 3(a)(3)
of such Act, as in effect on December 31, 2001.
SEC. 103. VESTING REQUIREMENT.
(a) Certain Annuities for Individuals.--Section 2(a) of the Railroad
Retirement Act of 1974 (45 U.S.C. 231a(a)) is amended--
(1) by inserting in subdivision (1) ``(or, for purposes of
paragraphs (i), (iii), and (v), five years of service, all of
which accrues after December 31, 1995)'' after ``ten years of
service''; and
(2) by adding at the end the following new subdivision:
``(4) An individual who is entitled to an annuity under paragraph (v)
of subdivision (1), but who does not have at least ten years of
service, shall, prior to the month in which the individual attains age
62, be entitled only to an annuity amount computed under section 3(a)
of this Act (without regard to section 3(a)(2) of this Act) or section
3(f)(3) of this Act. Upon attainment of age 62, such an individual may
also be entitled to an annuity amount computed under section 3(b), but
such annuity amount shall be reduced for early retirement in the same
manner as if the individual were entitled to an annuity under section
2(a)(1)(iii).''.
(b) Computation Rule for Individuals' Annuities.--Section 3(a) of the
Railroad Retirement Act of 1974 (45 U.S.C. 231b(a)), as amended by
section 102 of this Act, is further amended by adding at the end the
following new subdivision:
``(3) If an individual entitled to an annuity under section
2(a)(1)(i) or (iii) of this Act on the basis of less than ten years of
service is entitled to a benefit under section 202(a), section 202(b),
or section 202(c) of the Social Security Act which began to accrue
before the annuity under section 2(a)(1)(i) or (iii) of this Act, the
annuity amount provided such individual under this subsection, shall be
computed as though the annuity under this Act began to accrue on the
later of (A) the date on which the benefit under section 202(a),
section 202(b), or section 202(c) of the Social Security Act began, or
(B) the date on which the individual first met the conditions for
entitlement to an age reduced annuity under this Act other than the
conditions set forth in sections 2(e)(1) and 2(e)(2) of this Act and
the requirement that an application be filed.''.
(c) Survivors' Annuities.--Section 2(d)(1) of the Railroad Retirement
Act of 1974 (45 U.S.C. 231a(d)(1)) is amended by inserting ``(or five
years of service, all of which accrues after December 31, 1995)'' after
``ten years of service''.
(d) Limitation on Annuity Amounts.--Section 2 of the Railroad
Retirement Act of 1974 (45 U.S.C. 231a) is amended by adding at the end
the following new subsection:
``(i) An individual entitled to an annuity under this section who has
completed five years of service, all of which accrues after 1995, but
who has not completed ten years of service, and the spouse, divorced
spouse, and survivors of such individual, shall not be entitled to an
annuity amount provided under section 3(a), section 4(a), or section
4(f) of this Act unless the individual, or the individual's spouse,
divorced spouse, or survivors, would be entitled to a benefit under
title II of the Social Security Act on the basis of the individual's
employment record under both this Act and title II of the Social
Security Act.''.
(e) Computation Rule for Spouses' Annuities.--Section 4(a) of the
Railroad Retirement Act of 1974 (45 U.S.C. 231c(a)), as amended by
section 102 of this Act, is further amended by adding at the end the
following new subdivision:
``(3) If a spouse entitled to an annuity under section
2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), or section 2(c)(2) of this Act
or a divorced spouse entitled to an annuity under section 2(c)(4) of
this Act on the basis of the employment record of an employee who will
have completed less than 10 years of service is entitled to a benefit
under section 202(a), section 202(b), or section 202(c) of the Social
Security Act which began to accrue before the annuity under section
2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), section 2(c)(2), or section
2(c)(4) of this Act, the annuity amount provided under this subsection
shall be computed as though the annuity under this Act began to accrue
on the later of (A) the date on which the benefit under section 202(a),
section 202(b), or section 202(c) of the Social Security Act began or
(B) the first date on which the annuitant met the conditions for
entitlement to an age reduced annuity under this Act other than the
conditions set forth in sections 2(e)(1) and 2(e)(2) of this Act and
the requirement that an application be filed.''.
(f) Application Deeming Provision.--Section 5(b) of the Railroad
Retirement Act of 1974 (45 U.S.C. 231d(b)) is amended by striking the
second sentence and inserting the following new sentence: ``An
application filed with the Board for an employee annuity, spouse
annuity, or divorced spouse annuity on the basis of the employment
record of an employee who will have completed less than ten years of
service shall be deemed to be an application for any benefit to which
such applicant may be entitled under this Act or section 202(a),
section 202(b), or section 202(c) of the Social Security Act. An
application filed with the Board for an annuity on the basis of the
employment record of an employee who will have completed ten years of
service shall, unless the applicant specified otherwise, be deemed to
be an application for any benefit to which such applicant may be
entitled under this Act or title II of the Social Security Act.''.
(g) Crediting Service Under the Social Security Act.--Section 18(2)
of the Railroad Retirement Act of 1974 (45 U.S.C. 231q(2)) is amended--
(1) by inserting ``(or less than five years of service, all
of which accrues after December 31, 1995)'' after ``ten years
of service'' every place it appears; and
(2) by inserting ``(or five or more years of service, all of
which accrues after December 31, 1995)'' after ``ten or more
years of service''.
(h) Automatic Benefit Eligibility Adjustments.--Section 19 of the
Railroad Retirement Act of 1974 (45 U.S.C. 231r) is amended--
(1) by inserting ``(or five or more years of service, all of
which accrues after December 31, 1995)'' after ``ten years of
service'' in subsection (c); and
(2) by inserting ``(or five or more years of service, all of
which accrues after December 31, 1995)'' after ``ten years of
service'' in subsection (d)(2).
(i) Conforming Amendments.--
(1) Section 6(e)(1) of the Railroad Retirement Act of 1974
(45 U.S.C. 231e(1)) is amended by inserting ``(or five or more
years of service, all of which accrues after December 31,
1995)'' after ``ten years of service''.
(2) Section 7(b)(2)(A) of the Railroad Retirement Act of 1974
(45 U.S.C. 231f(b)(2)(A)) is amended by inserting ``(or five or
more years of service, all of which accrues after December 31,
1995)'' after ``ten years of service''.
(3) Section 205(i) of the Social Security Act (42 U.S.C.
405(i)) is amended by inserting ``(or five or more years of
service, all of which accrues after December 31, 1995)'' after
``ten years of service''.
(4) Section 6(b)(2) of the Railroad Retirement Act of 1974
(45 U.S.C. 231e(b)(2)) is amended by inserting ``(or five or
more years of service, all of which accrues after December 31,
1995)'' after ``ten years of service'' the second place it
appears.
(j) Effective Date.--The amendments made by this section shall take
effect on January 1, 2002.
SEC. 104. REPEAL OF RAILROAD RETIREMENT MAXIMUM.
(a) Employee Annuities.--
(1) In general.--Section 3(f) of the Railroad Retirement Act
of 1974 (45 U.S.C. 231b(f)) is amended--
(A) by striking subdivision (1); and
(B) by redesignating subdivisions (2) and (3) as
subdivisions (1) and (2), respectively.
(2) Conforming amendments.--
(A) The first sentence of section 3(f)(1) of the
Railroad Retirement Act of 1974 (45 U.S.C. 231b(f)(1)),
as redesignated by paragraph (1)(B), is amended by
striking ``, without regard to the provisions of
subdivision (1) of this subsection,''.
(B) Paragraphs (i) and (ii) of section 7(d)(2) of the
Railroad Retirement Act of 1974 (45 U.S.C. 231f(d)(2))
are each amended by striking ``section 3(f)(3)'' and
inserting ``section 3(f)(2)''.
(b) Spouse and Survivor Annuities.--Section 4 of the Railroad
Retirement Act of 1974 (45 U.S.C. 231c) is amended by striking
subsection (c).
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 2002, and shall apply to annuity amounts accruing
for months after December 2001.
SEC. 105. INVESTMENT OF RAILROAD RETIREMENT ASSETS.
(a) Establishment of Railroad Retirement Investment Trust.--Section
15 of the Railroad Retirement Act of 1974 (45 U.S.C. 231n) is amended
by inserting after subsection (i) the following new subsection:
``(j) Railroad Retirement Investment Trust.--
``(1) Establishment.--The Railroad Retirement Investment
Trust (hereinafter in this subsection referred to as the
`Trust') is hereby established as a trust domiciled in the
District of Columbia and shall, to the extent not inconsistent
with this Act, be subject to the laws of the District of
Columbia applicable to such trusts. The Trust shall manage and
invest its assets in the manner set forth in this subsection.
``(2) Not a federal agency or instrumentality.--The Trust is
not a department, agency, or instrumentality of the Government
of the United States and shall not be subject to title 31,
United States Code.
``(3) Board of trustees.--
``(A) Generally.--The Trust shall have a Board of
Trustees, consisting of 7 members, each appointed by a
unanimous vote of the Railroad Retirement Board. The
Railroad Retirement Board may remove any member so
appointed by unanimous vote. Of the members, 3 shall
represent the interests of labor, 3 shall represent the
interests of management, and 1 shall represent the
interests of the general public. The members of the
Board of Trustees shall not be considered officers or
employees of the Government of the United States.
``(B) Qualifications.--Members of the Board of
Trustees shall be appointed only from among persons who
have experience and expertise in the management of
financial investments and pension plans. No member of
the Railroad Retirement Board shall be eligible to be a
member of the Board of Trustees.
``(C) Terms.--Except as provided in this
subparagraph, each member shall be appointed for a 3-
year term. The initial members appointed under this
paragraph shall be divided into equal groups so nearly
as may be, of which one group will be appointed for a
1-year term, one for a 2-year term, and one for a 3-
year term. A vacancy in the Board of Trustees shall not
affect the powers of the Board of Trustees and shall be
filled in the same manner as the selection of the
member whose departure caused the vacancy. Upon the
expiration of a term of a member of the Board of
Trustees, that member shall continue to serve until a
successor is appointed.
``(4) Powers of the board of trustees.--The Board of Trustees
shall--
``(A) retain independent advisers to assist it in the
formulation and adoption of its investment guidelines;
``(B) retain independent investment managers to
invest the assets of the Trust in a manner consistent
with such investment guidelines;
``(C) invest assets in the Trust, pursuant to the
policies adopted in subparagraph (A);
``(D) pay administrative expenses of the Trust from
the assets in the Trust; and
``(E) transfer money to the disbursing agent or as
otherwise provided in section 7(b)(4), to pay benefits
payable under this Act from the assets of the Trust.
``(5) Reporting requirements and fiduciary standards.--The
following reporting requirements and fiduciary standards shall
apply with respect to the Trust:
``(A) Duties of the board of trustees.--The Trust and
each member of the Board of Trustees shall discharge
their duties with respect to the assets of the Trust
solely in the interest of the Railroad Retirement Board
and through it, the participants and beneficiaries of
the programs funded under this Act--
``(i) for the exclusive purpose of--
``(I) providing benefits to
participants and their beneficiaries;
and
``(II) defraying reasonable expenses
of administering the functions of the
Trust;
``(ii) with the care, skill, prudence, and
diligence under the circumstances then
prevailing that a prudent person acting in a
like capacity and familiar with such matters
would use in the conduct of an enterprise of a
like character and with like aims;
``(iii) by diversifying investments so as to
minimize the risk of large losses, unless under
the circumstances it is clearly prudent not to
do so; and
``(iv) in accordance with Trust governing
documents and instruments insofar as such
documents and instruments are consistent with
this Act.
``(B) Prohibitions with respect to members of the
board of trustees.--No member of the Board of Trustees
shall--
``(i) deal with the assets of the Trust in
the trustee's own interest or for the trustee's
own account;
``(ii) in an individual or in any other
capacity act in any transaction involving the
assets of the Trust on behalf of a party (or
represent a party) whose interests are adverse
to the interests of the Trust, the Railroad
Retirement Board, or the interests of
participants or beneficiaries; or
``(iii) receive any consideration for the
trustee's own personal account from any party
dealing with the assets of the Trust.
``(C) Exculpatory provisions and insurance.--Any
provision in an agreement or instrument that purports
to relieve a trustee from responsibility or liability
for any responsibility, obligation, or duty under this
Act shall be void: Provided, however, That nothing
shall preclude--
``(i) the Trust from purchasing insurance for
its trustees or for itself to cover liability
or losses occurring by reason of the act or
omission of a trustee, if such insurance
permits recourse by the insurer against the
trustee in the case of a breach of a fiduciary
obligation by such trustee;
``(ii) a trustee from purchasing insurance to
cover liability under this section from and for
his own account; or
``(iii) an employer or an employee
organization from purchasing insurance to cover
potential liability of one or more trustees
with respect to their fiduciary
responsibilities, obligations, and duties under
this section.
``(D) Bonding.--Every trustee and every person who
handles funds or other property of the Trust (hereafter
in this subsection referred to as `Trust official')
shall be bonded. Such bond shall provide protection to
the Trust against loss by reason of acts of fraud or
dishonesty on the part of any Trust official, directly
or through the connivance of others, and shall be in
accordance with the following:
``(i) The amount of such bond shall be fixed
at the beginning of each fiscal year of the
Trust by the Railroad Retirement Board. Such
amount shall not be less than 10 percent of the
amount of the funds handled. In no case shall
such bond be less than $1,000 nor more than
$500,000, except that the Railroad Retirement
Board, after consideration of the record, may
prescribe an amount in excess of $500,000,
subject to the 10 per centum limitation of the
preceding sentence.
``(ii) It shall be unlawful for any Trust
official to receive, handle, disburse, or
otherwise exercise custody or control of any of
the funds or other property of the Trust
without being bonded as required by this
subsection and it shall be unlawful for any
Trust official, or any other person having
authority to direct the performance of such
functions, to permit such functions, or any of
them, to be performed by any Trust official,
with respect to whom the requirements of this
subsection have not been met.
``(iii) It shall be unlawful for any person
to procure any bond required by this subsection
from any surety or other company or through any
agent or broker in whose business operations
such person has any control or significant
financial interest, direct or indirect.
``(E) Audit and report.--
``(i) The Trust shall annually engage an
independent qualified public accountant to
audit the financial statements of the Trust.
``(ii) The Trust shall submit an annual
management report to the Congress not later
than 180 days after the end of the Trust's
fiscal year. A management report under this
subsection shall include--
``(I) a statement of financial
position;
``(II) a statement of operations;
``(III) a statement of cash flows;
``(IV) a statement on internal
accounting and administrative control
systems;
``(V) the report resulting from an
audit of the financial statements of
the Trust conducted under clause (i);
and
``(VI) any other comments and
information necessary to inform the
Congress about the operations and
financial condition of the Trust.
``(iii) The Trust shall provide the
President, the Railroad Retirement Board, and
the Director of the Office of Management and
Budget a copy of the management report when it
is submitted to Congress.
``(F) Enforcement.--The Railroad Retirement Board may
bring a civil action--
``(i) to enjoin any act or practice by the
Trust, its Board of Trustees, or its employees
or agents that violates any provision of this
Act; or
``(ii) to obtain other appropriate relief to
redress such violations, or to enforce any
provisions of this Act.
``(6) Application of fiduciary standards to railroad
retirement board.--
``(A) In general.--The provisions of paragraph (5)(A)
shall apply to the members of the Railroad Retirement
Board in the discharge of their duty to appoint the
members of the Board of Trustees under paragraph (3)(A)
in the same manner as such provisions apply to the
members of the Board of Trustees.
``(B) Enforcement.--For purposes of this paragraph,
the provisions of paragraph (5)(F) shall apply by
substituting `the Secretary of Labor' for `the Railroad
Retirement Board'.
``(7) Rules and administrative powers.--The Board of Trustees
shall have the authority to make rules to govern its
operations, employ professional staff, and contract with
outside advisers, including the Railroad Retirement Board, to
provide legal, accounting, investment advisory, or other
services necessary for the proper administration of this
subsection. In the case of contracts with investment advisory
services, compensation for such services may be on a fixed
contract fee basis or on such other terms and conditions as are
customary for such services.
``(8) Quorum.--Five members of the Board of Trustees
constitute a quorum to do business. Investment guidelines must
be adopted by a unanimous vote of the entire Board of Trustees.
All other decisions of the Board of Trustees shall be decided
by a majority vote of the quorum present. All decisions of the
Board of Trustees shall be entered upon the records of the
Board of Trustees.
``(9) Funding.--The expenses of the Trust and the Board of
Trustees incurred under this subsection shall be paid from the
Trust.''.
(b) Conforming and Technical Amendments Governing Investments.--
Subsection 15(e) of the Railroad Retirement Act of 1974 (45 U.S.C.
231n(e)) is amended--
(1) in the first sentence, by striking ``, the Dual Benefits
Payments Account'' and all that follows through ``may be made
only'' in the second sentence and inserting ``and the Dual
Benefits Payments Account as are not transferred to the
Railroad Retirement Investment Trust as the Board may
determine'';
(2) by striking ``the Second Liberty Bond Act, as amended''
and inserting ``chapter 31 of title 31''; and
(3) by striking ``the foregoing requirements'' and inserting
``the requirements of this subsection''.
(c) Effective Date.--The amendments made by this section shall take
effect on the first day of the month that begins more than 30 days
after enactment.
SEC. 106. ELIMINATION OF SUPPLEMENTAL ANNUITY ACCOUNT.
(a) Source of Payments.--Section 7(c)(1) of the Railroad Retirement
Act of 1974 (45 U.S.C. 231f(c)(1)) is amended by striking ``payments of
supplemental annuities under section 2(b) of this Act shall be made
from the Railroad Retirement Supplemental Account, and''.
(b) Elimination of Account.--Section 15(c) of the Railroad Retirement
Act of 1974 (45 U.S.C. 231n(c)) is repealed.
(c) Amendment to Railroad Retirement Account.--Section 15(a) of the
Railroad Retirement Act of 1974 (45 U.S.C. 231n(a)) is amended by
striking ``, except those portions of the amounts covered into the
Treasury under sections 3211(b),'' and all that follows through the end
of the subsection and inserting a period.
(d) Transfer.--
(1) Determination.--As soon as possible after December 31,
2001, the Railroad Retirement Board shall--
(A) determine the amount of funds in the Railroad
Retirement Supplemental Account under section 15(c) of
the Railroad Retirement Act of 1974 (45 U.S.C. 231n(c))
as of the date of such determination; and
(B) direct the Secretary of the Treasury to transfer
such funds to the Railroad Retirement Investment Trust
under section 15(j) of such Act (as added by section
105).
(2) Transfer by the secretary of the treasury.--The Secretary
of the Treasury shall make the transfer described in paragraph
(1).
(e) Effective Date.--
(1) In general.--Subject to paragraph (2), the amendments
made by subsections (a), (b), and (c) shall take effect January
1, 2002.
(2) Account in existence until transfer made.--The Railroad
Retirement Supplemental Account under section 15(c) of the
Railroad Retirement Act of 1974 (45 U.S.C. 231n(c)) shall
continue to exist until the date that the Secretary of the
Treasury makes the transfer described in subsection (d)(2).
SEC. 107. TRANSFER AUTHORITY REVISIONS.
(a) Railroad Retirement Account.--Section 15 of the Railroad
Retirement Act of 1974 (45 U.S.C. 231n) is amended by adding after
subsection (j) the following new subsection:
``(k) Transfers to the Trust.--The Board shall, upon establishment of
the Railroad Retirement Investment Trust and from time to time
thereafter, direct the Secretary of the Treasury to transfer, in such
manner as will maximize the investment returns to the Railroad
Retirement system, that portion of the Railroad Retirement Account that
is not needed to pay current administrative expenses of the Board to
the Railroad Retirement Investment Trust. The Secretary shall make that
transfer.''.
(b) Transfers From the Railroad Retirement Investment Trust.--Section
15 of the Railroad Retirement Act of 1974 (45 U.S.C. 231n), as amended
by subsection (a), is further amended by adding after subsection (k)
the following new subsection:
``(l) Railroad Retirement Investment Trust.--The Railroad Retirement
Investment Trust shall from time to time transfer to the disbursing
agent described in section 7(b)(4) or as otherwise directed by the
Railroad Retirement Board pursuant to section 7(b)(4), such amounts as
may be necessary to pay benefits under this Act (other than benefits
paid from the Social Security Equivalent Benefit Account or the Dual
Benefit Payments Account).''.
(c) Social Security Equivalent Benefit Account.--
(1) Transfers to trust.--Section 15A(d)(2) of the Railroad
Retirement Act of 1974 (45 U.S.C. 231n-1(d)(2)) is amended to
read as follows:
``(2) Upon establishment of the Railroad Retirement Investment Trust
and from time to time thereafter, the Board shall direct the Secretary
of the Treasury to transfer, in such manner as will maximize the
investment returns to the Railroad Retirement system, the balance of
the Social Security Equivalent Benefit Account not needed to pay
current benefits and administrative expenses required to be paid from
that Account to the Railroad Retirement Investment Trust, and the
Secretary shall make that transfer. Any balance transferred under this
paragraph shall be used by the Railroad Retirement Investment Trust
only to pay benefits under this Act or to purchase obligations of the
United States that are backed by the full faith and credit of the
United States pursuant to chapter 31 of title 31, United States Code.
The proceeds of sales of, and the interest income from, such
obligations shall be used by the Trust only to pay benefits under this
Act.''.
(2) Transfers to disbursing agent.--Section 15A(c)(1) of the
Railroad Retirement Act of 1974 (45 U.S.C. 231n-1(c)(1)) is
amended by adding at the end the following new sentence: ``The
Secretary shall from time to time transfer to the disbursing
agent under section 7(b)(4) amounts necessary to pay those
benefits.''.
(3) Conforming amendment.--Section 15A(d)(1) of the Railroad
Retirement Act of 1974 (45 U.S.C. 231n-1(d)(1)) is amended by
striking the second and third sentences.
(d) Dual Benefits Payments Account.--Section 15(d)(1) of the Railroad
Retirement Act of 1974 (45 U.S.C. 231n(d)(1)) is amended by adding at
the end the following new sentence: ``The Secretary of the Treasury
shall from time to time transfer from the Dual Benefits Payments
Account to the disbursing agent under section 7(b)(4) amounts necessary
to pay benefits payable from that Account.''.
(e) Certification by the Board and Payment.--Paragraph (4) of section
7(b) of the Railroad Retirement Act of 1974 (45 U.S.C. 231f(b)(4)) is
amended to read as follows:
``(4)(A) The Railroad Retirement Board, after consultation with the
Board of Trustees of the Railroad Retirement Investment Trust and the
Secretary of the Treasury, shall enter into an arrangement with a
nongovernmental financial institution to serve as disbursing agent for
benefits payable under this Act who shall disburse consolidated
benefits under this Act to each recipient. Pending the taking effect of
that arrangement, benefits shall be paid as under the law in effect
prior to the enactment of the Railroad Retirement and Survivors'
Improvement Act of 2001.
``(B) The Board shall from time to time certify--
``(i) to the Secretary of the Treasury the amounts required
to be transferred from the Social Security Equivalent Benefit
Account and the Dual Benefits Payments Account to the
disbursing agent to make payments of benefits and the Secretary
of the Treasury shall transfer those amounts;
``(ii) to the Board of Trustees of the Railroad Retirement
Investment Trust the amounts required to be transferred from
the Railroad Retirement Investment Trust to the disbursing
agent to make payments of benefits and the Board of Trustees
shall transfer those amounts; and
``(iii) to the disbursing agent the name and address of each
individual entitled to receive a payment, the amount of such
payment, and the time at which the payment should be made.''.
(f) Benefit Payments.--Section 7(c)(1) of the Railroad Retirement Act
of 1974 (45 U.S.C. 231f(c)(1)) is amended--
(1) by striking ``from the Railroad Retirement Account'' and
inserting ``by the disbursing agent under subsection (b)(4)
from money transferred to it from the Railroad Retirement
Investment Trust or the Social Security Equivalent Benefit
Account, as the case may be''; and
(2) by inserting ``by the disbursing agent under subsection
(b)(4) from money transferred to it'' after ``Public Law 93-445
shall be made''.
(g) Transitional Rule for Existing Obligation.--In making transfers
under sections 15(k) and 15A(d)(2) of the Railroad Retirement Act of
1974, as amended by subsections (a) and (c), respectively, the Railroad
Retirement Board shall consult with the Secretary of the Treasury to
design an appropriate method to transfer obligations held as of the
date of enactment of this Act or to convert such obligations to cash at
the discretion of the Railroad Retirement Board prior to transfer. The
Railroad Retirement Investment Trust may hold to maturity any
obligations so received or may redeem them prior to maturity, as the
Trust deems appropriate.
SEC. 108. ANNUAL RATIO PROJECTIONS AND CERTIFICATIONS BY THE RAILROAD
RETIREMENT BOARD.
(a) Projections.--Section 22(a)(1) of the Railroad Retirement Act of
1974 (45 U.S.C. 231u(a)(1)) is amended--
(1) by inserting after the first sentence the following new
sentence: ``On or before May 1 of each year beginning in 2003,
the Railroad Retirement Board shall compute its projection of
the account benefits ratio and the average account benefits
ratio (as defined by section 3241(c) of the Internal Revenue
Code of 1986) for each of the next succeeding five fiscal
years.''; and
(2) by striking ``the projection prepared pursuant to the
preceding sentence'' and inserting ``the projections prepared
pursuant to the preceding two sentences''.
(b) Certifications.--The Railroad Retirement Act of 1974 (45 U.S.C.
231 et seq.) is amended by adding at the end the following new section:
``computation and certification of account benefit ratios
``Sec. 23. (a) Initial Computation and Certification.--On or before
November 1, 2003, the Railroad Retirement Board shall--
``(1) compute the account benefits ratios for each of the
most recent 10 preceding fiscal years, and
``(2) certify the account benefits ratios for each such
fiscal year to the Secretary of the Treasury.
``(b) Computations and Certifications After 2003.--On or before
November 1 of each year after 2003, the Railroad Retirement Board
shall--
``(1) compute the account benefits ratio for the fiscal year
ending in such year, and
``(2) certify the account benefits ratio for such fiscal year
to the Secretary of the Treasury.
``(c) Definition.--As used in this section, the term `account
benefits ratio' has the meaning given that term in section 3241(c) of
the Internal Revenue Code of 1986.''.
TITLE II--AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986
SEC. 201. AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.
Except as otherwise provided, whenever in this title an amendment or
repeal is expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered to be
made to a section or other provision of the Internal Revenue Code of
1986.
SEC. 202. EXEMPTION FROM TAX FOR RAILROAD RETIREMENT INVESTMENT TRUST.
Subsection (c) of section 501 is amended by adding at the end the
following new paragraph:
``(28) The Railroad Retirement Investment Trust established
under section 15(j) of the Railroad Retirement Act of 1974.''.
SEC. 203. REPEAL OF SUPPLEMENTAL ANNUITY TAX.
(a) Repeal of Tax on Employee Representatives.--Section 3211 is
amended by striking subsection (b).
(b) Repeal of Tax on Employers.--Section 3221 is amended by striking
subsections (c) and (d) and by redesignating subsection (e) as
subsection (c).
(c) Effective Date.--The amendments made by this section shall apply
to calendar years beginning after December 31, 2001.
SEC. 204. EMPLOYER, EMPLOYEE REPRESENTATIVE, AND EMPLOYEE TIER 2 TAX
RATE ADJUSTMENTS.
(a) Rate of Tax on Employers.--Subsection (b) of section 3221 is
amended to read as follows:
``(b) Tier 2 Tax.--
``(1) In general.--In addition to other taxes, there is
hereby imposed on every employer an excise tax, with respect to
having individuals in his employ, equal to the applicable
percentage of the compensation paid during any calendar year by
such employer for services rendered to such employer.
``(2) Applicable percentage.--For purposes of paragraph (1),
the term `applicable percentage' means--
``(A) 15.6 percent in the case of compensation paid
during 2002,
``(B) 14.2 percent in the case of compensation paid
during 2003, and
``(C) in the case of compensation paid during any
calendar year after 2003, the percentage determined
under section 3241 for such calendar year.''.
(b) Rate of Tax on Employee Representatives.--Section 3211, as
amended by section 203, is amended by striking subsection (a) and
inserting the following new subsections:
``(a) Tier 1 Tax.--In addition to other taxes, there is hereby
imposed on the income of each employee representative a tax equal to
the applicable percentage of the compensation received during any
calendar year by such employee representative for services rendered by
such employee representative. For purposes of the preceding sentence,
the term `applicable percentage' means the percentage equal to the sum
of the rates of tax in effect under subsections (a) and (b) of section
3101 and subsections (a) and (b) of section 3111 for the calendar year.
``(b) Tier 2 Tax.--
``(1) In general.--In addition to other taxes, there is
hereby imposed on the income of each employee representative a
tax equal to the applicable percentage of the compensation
received during any calendar year by such employee
representatives for services rendered by such employee
representative.
``(2) Applicable percentage.--For purposes of paragraph (1),
the term `applicable percentage' means--
``(A) 14.75 percent in the case of compensation
received during 2002,
``(B) 14.20 percent in the case of compensation
received during 2003, and
``(C) in the case of compensation received during any
calendar year after 2003, the percentage determined
under section 3241 for such calendar year.
``(c) Cross Reference.--
``For application of different contribution bases
with respect to the taxes imposed by subsections (a) and (b), see
section 3231(e)(2).''.
(c) Rate of Tax on Employees.--Subsection (b) of section 3201 is
amended to read as follows:
``(b) Tier 2 Tax.--
``(1) In general.--In addition to other taxes, there is
hereby imposed on the income of each employee a tax equal to
the applicable percentage of the compensation received during
any calendar year by such employee for services rendered by
such employee.
``(2) Applicable percentage.--For purposes of paragraph (1),
the term `applicable percentage' means--
``(A) 4.90 percent in the case of compensation
received during 2002 or 2003, and
``(B) in the case of compensation received during any
calendar year after 2003, the percentage determined
under section 3241 for such calendar year.''.
(d) Determination of Rate.--Chapter 22 is amended by adding at the
end the following new subchapter:
``Subchapter E--Tier 2 Tax Rate Determination
``Sec. 3241. Determination of tier 2 tax
rate based on average account
benefits ratio.
``SEC. 3241. DETERMINATION OF TIER 2 TAX RATE BASED ON AVERAGE ACCOUNT
BENEFITS RATIO.
``(a) In General.--For purposes of sections 3201(b), 3211(b), and
3221(b), the applicable percentage for any calendar year is the
percentage determined in accordance with the table in subsection (b).
``(b) Tax Rate Schedule.--
------------------------------------------------------------------------
``Average account benefits ratio Applicable
----------------------------------- percentage for Applicable
sections 3211(b) percentage for
At least But less than and 3221(b) section 3201(b)
------------------------------------------------------------------------
2.5 22.1 4.9
2.5 3.0 18.1 4.9
3.0 3.5 15.1 4.9
3.5 4.0 14.1 4.9
4.0 6.1 13.1 4.9
6.1 6.5 12.6 4.4
6.5 7.0 12.1 3.9
7.0 7.5 11.6 3.4
7.5 8.0 11.1 2.9
8.0 8.5 10.1 1.9
8.5 9.0 9.1 0.9
9.0 8.2 0
------------------------------------------------------------------------
``(c) Definitions Related to Determination of Rates of Tax.--
``(1) Average account benefits ratio.--For purposes of this
section, the term `average account benefits ratio' means, with
respect to any calendar year, the average determined by the
Secretary of the account benefits ratios for the 10 most recent
fiscal years ending before such calendar year. If the amount
determined under the preceding sentence is not a multiple of
0.1, such amount shall be increased to the next highest
multiple of 0.1.
``(2) Account benefits ratio.--For purposes of this section,
the term `account benefits ratio' means, with respect to any
fiscal year, the amount determined by the Railroad Retirement
Board by dividing the fair market value of the assets in the
Railroad Retirement Account and of the Railroad Retirement
Investment Trust (and for years before 2002, the Social
Security Equivalent Benefits Account) as of the close of such
fiscal year by the total benefits and administrative expenses
paid from the Railroad Retirement Account and the Railroad
Retirement Investment Trust during such fiscal year.
``(d) Notice.--No later than December 1 of each calendar year, the
Secretary shall publish a notice in the Federal Register of the rates
of tax determined under this section which are applicable for the
following calendar year.''.
(e) Conforming Amendments.--
(1) Section 24(d)(3)(A)(iii) is amended by striking ``section
3211(a)(1)'' and inserting ``section 3211(a)''.
(2) Section 72(r)(2)(B)(i) is amended by striking
``3211(a)(2)'' and inserting ``3211(b)''.
(3) Paragraphs (2)(A)(iii)(II) and (4)(A) of section 3231(e)
are amended by striking ``3211(a)(1)'' and inserting
``3211(a)''.
(4) Section 3231(e)(2)(B)(ii)(I) is amended by striking
``3211(a)(2)'' and inserting ``3211(b)''.
(5) The table of subchapters for chapter 22 is amended by
adding at the end the following new item:
``Subchapter E. Tier 2 tax rate
determination.''.
(f) Effective Date.--The amendments made by this section shall apply
to calendar years beginning after December 31, 2001.
Purpose of the Bill
H.R. 1140 modernizes the federally administered railroad
retirement system by improving benefits (including higher
annuities for retirees' surviving spouses, lowered pension
retirement age, and reduced vesting period), reducing payroll
tax burdens (with future automatic tax rate adjustments to
reflect the performance of pension assets), and allowing
professionally managed diversified investment of pension assets
through an investment trust to produce higher future investment
returns.
Background and Need for the Legislation
The railroad retirement system was created separate from
the Social Security program through a series of laws enacted in
the 1930's, culminating in the Railroad Retirement and
Carriers' Taxing Acts of 1937. There was ample precedent for
legislation taking into account the particular circumstances of
the rail industry. Numerous laws pertaining to rail operations
and safety, as well as the Railway Labor Act of 1926, had been
enacted since the Interstate Commerce Act of 1887, and many
more have been enacted since the 1930's.
The need for a separate railroad retirement system arose
from the inadequate financing of many of the railroads'
preexisting private pension plans, and a desire to promote
employment opportunities for younger workers in the nation's
largest industry through the creation of a system of immediate
benefit payments to older workers based on accumulated service.
Social Security did not begin paying benefits until 1940 and
did not credit service prior to 1937.
Substantive changes to the Railroad Retirement and
Carriers' Taxing Acts of 1937, including its replacement by the
current Railroad Retirement Act of 1974, and substantive
amendments to that latter Act have generally been enacted on
the basis of joint recommendations negotiated by
representatives of rail labor and management.
The last major reform of railroad retirement occurred in
1983 with enactment of the Railroad Retirement Solvency Act.
This Act raised tier 2 tax rates on both employers and
employees, and for the first time subjected railroad retirement
tier 2 benefits to federal income tax. It also raised the age
at which one can receive a full annuity from 60 with thirty
years of service to 62 with thirty years of service.
The railroad retirement system is administered by the
Railroad Retirement Board, which is an independent agency in
the executive branch of the United States Government. The Board
has three members, each of whom is appointed by the President
and confirmed by the Senate. The Railroad Retirement Act
requires that one Board Member be appointed upon the
recommendation of railroad labor and another Member appointed
on the recommendation of rail management. The Chair is
appointed to represent the public at large.
The primary annuities paid under the Railroad Retirement
Act consist of two different components called tiers. The tier
1 benefit is based upon both the railroad and non-railroad
earnings of the railroad employee, using social security
formulas, and approximates (with some minor exceptions) what
would be payable under the Social Security Act. Tier 2 benefits
are based on an employee's railroad service only and are
computed under benefit formulas in the Railroad Retirement Act.
Tier 2 is the functional equivalent of a private industry-wide
pension plan.
In fiscal year 2000, the Railroad Retirement Board paid
$8.3 billion in retirement and survivor benefits to 724,000
beneficiaries. At the end of fiscal year 2000, there were
308,597 railroad retirees, 161,283 spouses or divorced spouses
of retirees, and 211,291 survivors receiving railroad
retirement benefits.
Payroll taxes on railroad employers and employees serve as
the primary source of funding for railroad retirement benefits.
Other sources include fund transfers under the financial
interchange with the Social Security system for tier 1
benefits; investment earnings from the trust funds; general
revenue appropriations for vested dual benefits; income taxes
on benefits; and a work hour tax paid by railroad employers
called the supplemental annuity tax.
The changes made in H.R. 1140 apply only to the tier 2
component of railroad retirement and are funded entirely by
payroll taxes on railroad employers and employees and earnings
from the investment of those taxes. Currently, railroads pay a
16.1 percent payroll tax and employees pay a 4.9 percent
payroll tax for tier 2 benefits. H.R. 1140 would not create any
general fund subsidies to the railroad retirement system.
Legislative History and Committee Consideration
On September 17, 1998, the Subcommittee on Railroads held a
hearing on H. Con. Res. 52, modifying the Railroad Retirement
tier 2 Benefits for Widows and Widowers, which had been
introduced by Congressman Jack Quinn (R-NY). H. Con. Res. 52
was a concurrent resolution urging that the railroad industry,
including rail labor, management and retiree organizations,
open discussions for adequately funding an amendment to the
Railroad Retirement Act of 1974 to modify the guaranteed
minimum benefit for widows and widowers. Following the hearing,
rail labor and management initiated discussions on a
comprehensive reform of railroad retirement.
H.R. 4844, introduced in the 106th Congress, was
cosponsored by the bipartisan leadership of the Transportation
and Infrastructure Committee and the Ways and Means Committee,
and represented the agreement between management and a majority
of rail labor that came out of those negotiations. Following
Committee consideration, H.R. 4844 was brought to the House
floor, where the bill passed 391-25. The legislation was
subsequently reported out of the Senate Committee on Finance,
but not considered on the Senate Floor. The Railroad Retirement
reform measure was reintroduced in the 107th Congress by
Chairman of the Transportation and Infrastructure Committee,
Don Young, and Ranking Member Jim Oberstar, as H.R. 1140. H.R.
1140 was identical to the House passed version of H.R. 4844. In
Committee, the Subcommittee on Railroads amended H.R. 1140,
inserting new effective dates to reflect the passage of time,
and making other minor technical changes. On May 9, 2001, the
Subcommittee on Railroads met in open session and favorably
reported H.R. 1140. On May 16, 2001, the Committee on
Transportation and Infrastructure met in open session and
favorably reported H.R. 1140.
Summary of H.R. 1140
Changes to the tax structure
Both Railroad Retirement benefits and payroll tax rates are
fixed by current law. Thus, changes in the system require
Congressional action. H.R. 1140 would make the tier 2 tax rates
more responsive to actual financing needs by the establishment
of an automatic tax adjustment formula. Under this statutory
formula, payroll taxes would be raised or lowered
automatically, without further action by Congress, depending on
the level of funds available to pay benefits. (A similar system
of adjustable tax rates for railroad unemployment benefits was
enacted in 1988.)
Payroll taxes would be set each calendar year, pursuant to
a statutory formula. In any calendar year for which the 10-year
accounts benefits ratio \1\ at the close of the previous fiscal
year was no lower than 4.0 and no higher than 6.0, the tax
rates would be set at ``normal'' levels of 13.1 percent for the
employer and 4.9 percent for the employee. (The proposed
reduction of the employer tax rate from the current 16.1
percent to 13.1 percent is discussed below.) These ``normal''
rates are projected to keep the average balance at or above a
4-year benefit reserve over the next 75 years, based on
improving returns by an estimated 2 percentage points
(discussed below). If the average fund balance ratio falls
below 4.0 or exceeds 6.0, the tax rates would vary in
accordance with the statutory formula. The 4-year minimum
benefits reserve requirement represents a higher level of
reserves than the Railroad Retirement Account has had over most
of the last 40 years. Key features of the operation of the tax
adjustment mechanism include:
---------------------------------------------------------------------------
\1\ This is the ratio of the fund balance to annual benefit
payments and administrative expenses.
---------------------------------------------------------------------------
Allocation of Tax Rate Changes. Any increase in
the payroll tax above the normal rates would be borne entirely
by railroad employers. Any reduction in the rates below the
normal rates would be divided equally between railroad
employers and employees.
Future Benefit Changes. If the average fund
balance ratio exceeds 6.0, employees may choose between a tier
2 tax rate reduction specified in the statute, or a benefit
increase of equal value. Benefit increases would be legislated
by Congress, and management has agreed to support enactment of
this legislation.
Increase in Employee Tax Rate by Additional
Benefit Equivalent. If any additional benefit is enacted as
agreed above, the legislation would provide that the employee
tax rate that otherwise would be effective under the statutory
formula would be increased by the cost of the benefit.
Investment of assets
Currently, investment of RRA assets is limited to U.S.
government securities. Railroad Retirement Board projections
for the RRA assume an annual return of 6 percent on
investments. Between 1985 and 1998, the average annual return
on RRA assets was unusually high at 9.12 percent, but this
still lagged far behind the average annual return in large
multi-employer pension plans of 15.17 percent over the same
period. Under H.R. 1140, authority would be provided for tier 2
RRA assets to be invested in a new diversified investment
portfolio, as are assets of private sector pension plans. A
Railroad Retirement Investment Trust would be established to
invest the assets of the RRA in a Trust Fund outside of
Treasury. An independent Board of Trustees would be appointed
to administer the Trust. The Trustees would be responsible for
establishing investment guidelines for the prudent management
of tier 2 assets and for selecting outside investment advisors
and managers to implement investment policies. There would be 7
members of the Board of Trustees, all with investment
experience and selected by a unanimous vote of the Railroad
Retirement Board.
In designing this investment proposal, it was assumed that
investments by the Trust would result in an average annual
return of 8 percent, i.e., 2 percentage points above current
projections. Improving performance of the Trust portfolio by
this amount permits the enhancement of employee benefits and
the reduction of railroad employer tax rates, while maintaining
at least an average benefit reserve of 4 years or more. If the
investment portfolio of the Trust performs well in the future,
additional employer tax reductions and employee tax reductions
of equal value would be possible.
Benefit improvements
More effective management of tier 2 assets would allow for
the adoption of certain benefit improvements while protecting
the long-term stability of the railroad retirement system.
Payment of vested dual benefits and supplemental annuity
benefits would continue as under current law. The bill would
provide for the following benefit improvements:
Expansion of Surviving Spouse Benefit. Surviving
spouses would inherit the full tier 2 annuity of the deceased
retiree. Currently, the surviving spouse may receive no more
than 50 percent of the retiree's annuity.
Liberalized Early Retirement. Currently, an
employee with 30 years of service is eligible to retire at age
62 with no actuarial reduction in benefits. H.R. 1140 would
allow for early retirement at age 60 with 30 years of service
without a benefit reduction. As such, the bill would return the
early retirement eligibility age to its pre-1984 level. The
spouse of such an employee would also be eligible for an
unreduced annuity at age 60.\2\
---------------------------------------------------------------------------
\2\ Post-retirement Health Benefit. As part of the national
collective bargaining agreement between labor and rail management, an
early retirement health benefits plan is available for retirees at age
61. Management and labor have agreed to re-negotiate the agreement to
lower the eligibility age to 60 and to adjust the maximum lifetime
benefit for medical inflation, if H.R. 1140 is enacted. This would
conform eligibility for this private health benefit plan with
eligibility for early retirement.
---------------------------------------------------------------------------
Liberalized Vesting. The ten-year service
requirement to vest for tier 1 and tier 2 annuities would be
reduced to five years. Any employee with five years of post-
1995 service would be vested. This requirement would be
consistent with private industry practices.
Railroad Retirement Act Maximum. The limit on
certain tier 2 annuities awarded to an employee and an
employee's spouse would be repealed.
Tax reductions
Railroad employers currently pay 16.1 percent of taxable
payroll into the tier 2 account. Improved earnings from
investing the tier 2 assets would permit a phased reduction of
employer taxes over the first three years following enactment
of the proposal. The phase-in would occur as follows: 15.6
percent in 2002; 14.2 percent in 2003; and 13.1 percent in
2004. Employee tax rates would continue at the current 4.9
percent, except as provided under the tax adjustment mechanism
described above.
In addition, the supplemental annuity tax (SAT) would be
eliminated and supplemental annuity benefits would be paid
directly from the Trust. (There would be no change in
supplemental annuity benefits paid to eligible retirees.) The
SAT is a cents-per-hour tax, currently set at 26.0 cents, paid
only by employers. Benefits are available only to employees
hired prior to October 1981.
Administration
H.R. 1140 would continue the basic administrative structure
of railroad retirement for tier 1, the railroad industry
counterpart to Social Security. Tier 2 benefits would be paid
from the Trust, which would be administered by a fiduciary,
seven-member Board of Trustees. The Board is required to hire
professional investment managers. Management of the Trust
assets is subject to fiduciary standards similar to those under
ERISA.
Section-by-Section Explanation
title i
Sec. 101. Expansion of widow(er)s' benefit
The Railroad Retirement Act provides for the payment of an
annuity to the widow or widower of a deceased railroad
employee. The annuity is comprised of two components, or tiers.
The tier 1 component of a Railroad Retirement widow(er)'s
annuity is based on the employee's combined Railroad Retirement
and Social Security credits, figured under Social Security
formulas, and approximates what Social Security would pay if
railroad work were covered by that system. The widow(er)'s tier
1 benefit is generally equal to the amount of the tier 1
benefit that the employee received at the time of his or her
death, but may be reduced for receipt of certain other
benefits, including Social Security benefits. The tier 2
component of a Railroad Retirement widow(er)'s annuity is
generally equal to fifty percent of the tier 2 benefit that was
payable to the employee at the time of his or her death. Both
the widow(er)'s tier 1 and tier 2 benefit components are
increased by cost-of-living adjustments.
Section 101 provides a guaranteed amount for widow(er)s
based on the amount of the tier 1 and tier 2 benefit that would
have been payable to the employee at the time of the award of
the widow(er)'s annuity. This initial minimum amount is to be
calculated at the time of the award of a widow(er)'s annuity
and is not adjusted thereafter. It is computed by taking the
amount of the widow(er)'s regular unreduced annuity under the
current computational provisions of the Railroad Retirement
Act, except that the tier 2 benefit is increased from 50
percent of the employee's tier 2 amount to 100 percent of that
amount. (The unreduced annuity is the amount before any
deduction on account of work and without regard to any
reductions for entitlement benefits under the Railroad
Retirement Act, Title II of the Social Security Act and a
public service pension.)
For any month in which the initial minimum amount exceeds
the unreduced annuity computed under the current law formula,
the excess amount is added to the widow(er)'s tier 2 benefit.
Coupled with the tier 1 widow(er)'s benefit, which under
current law is generally equal to the amount of the employee's
tier 1 benefit, the new tier 2 benefit computation provides
widow(er)s with an initial benefit equal to the benefit due the
employee at the time the widow(er)'s annuity is awarded.
The amendment is effective on the first day of the first
full month after enactment. It applies to annuities accruing
after the effective date. It also applies to annuities
previously awarded under the current law tier 2 benefit
formula. The computation of the initial minimum amount for
widow(er)s whose annuities began prior to the effective date is
made as of the date of the original annuity award and is not
adjusted for inflation.
Sec. 102. Retirement Age Restoration
The Railroad Retirement Act of 1974 provided for full
annuities at age 60 with 30 years of service for employees and
full annuities at age 60 for their spouses. As part of
legislation addressing a funding crisis in the Railroad
Retirement system, the Railroad Retirement Solvency Act of 1983
retained the provision for early retirement at age 60 for
employees with 30 years of railroad service and for their
spouses, but imposed a reduction in the tier 1 annuity
component for employee and spouse annuities that begin before
the employee reaches age 62. The full tier 2 annuity component
remained payable for both employees and spouses at age 60.
Section 102 amends the Railroad Retirement Act to again
provide full tier 1 annuities to employees at age 60 with 30
years of service and to spouses of employees with 30 years of
service at age 60. For purposes of calculating the amount of
the tier 1 component, the employee and spouse are deemed to
have attained full retirement age as defined by section 216(l)
of the Social Security Act. Accordingly, section 102 repeals
current sections 3(a)(3), 4(a)(3), and 4(a)(4) of the Railroad
Retirement Act, which imposes the reduction in the tier 1
annuity components of employees and spouses for retirement
prior to age 62.
Section 102 applies to employees and spouses of those
employees whose annuities begin on January 1, 2002, or
later.\3\
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\3\ As part of the national collective bargaining agreement between
labor and rail management, an early retirement health benefit plan is
available for retirees at age 61. Management and labor had agreed to
re-negotiate the agreement to lower the eligibility age to 60 and to
adjust the maximum lifetime benefit for medical inflation, if the
railroad retirement reform proposal is adopted by Congress. This would
conform eligibility for this private health benefit plan with
eligibility for early retirement.
---------------------------------------------------------------------------
Sec. 103. Vesting requirement
Under current law, an employee must have accrued at least
10 years of railroad service to be entitled to an annuity under
the Railroad Retirement Act. The Act also provides that the
spouse of an employee may be entitled to an annuity if the
employee had at least 10 years of railroad service. Finally, an
employee's survivors may be entitled to benefits under the
Railroad Retirement Act if the employee had at least 10 years
of railroad service and had a current connection with the
railroad industry at his or her death. If an employee does not
accrue 10 years of railroad service prior to retirement or
death, the employee's railroad service is transferred to the
Social Security Administration for use in computing any
benefits that may be payable under that Act.
Section 103 of the bill amends the Railroad Retirement Act
to reduce the vesting requirement for such benefits from the
current 10 years of railroad service to 5 years of railroad
service based on service after 1995. Employees with less than
10 years of employment before 1996 would have to meet either
the 10-year vesting requirement or acquire 5 years of post-1995
railroad service for age and service benefits.
Under current law, an individual entitled to a disability
annuity may receive a tier 2 benefit if he or she has 10 years
of service. Section 103(a) provides that an individual entitled
to a disability annuity who has more than five, but less than
ten years of service is eligible for a tier 2 benefit at age
62, subject to the same reductions for early retirement that
apply to individuals who have attained age 62 with less than 30
years of service.
Section 103(b) of the bill provides computation rules for
individual annuities. Where an employee applies for either a
Social Security benefit or a tier 1 benefit based on an
employment record of less than ten years of service, the
employee will not be entitled to receive higher combined
benefits under both Social Security and Railroad Retirement
than the employee would have received under either system.
Section 103(c) conforms the vesting requirement for
survivors' benefits to that for employee age and service
annuities. No conforming amendment for spouse benefits is
required as entitlement to such benefits is dependent upon the
employee being entitled to benefits.
Section 103(d) provides that an employee's tier 1 benefits
and other benefits that are equivalent to Social Security
benefits, such as spouse benefits, divorced spouse benefits and
survivor benefits, would only be payable if the employee had
sufficient service, based on combined service under the Social
Security and Railroad Retirement Acts, to qualify the employee
for benefits under the Social Security Act.
Section 103(e) of the bill applies rules with respect to
spouse benefits and divorced spouse benefits similar to those
applied to employee annuities under section 103(b) to provide
that a spouse or divorced spouse will not be entitled to
receive higher combined benefits under both Social Security and
Railroad Retirement than the annuitant would have received
under either system.
Section 103(f) provides that where an annuitant applies
first for a Railroad Retirement annuity, it will be deemed to
be an application for any benefit for which the applicant may
be entitled under the Railroad Retirement Act or section
202(a), section 202(b), or section 202(c) of the Social
Security Act.
Sections 103 (g) (h) and (i) make other conforming
amendments to the Railroad Retirement Act and the Social
Security Act to reflect the revised five-year vesting rules.
The amendments made by section 103 shall take effect on
January 1, 2002.
Sec. 104. Repeal of the railroad retirement maximum
Under current law, the total amount of Railroad Retirement
benefits payable to an employee and spouse is limited to the
``Railroad Retirement Act maximum,'' which is based on the
employee's average monthly earnings prior to retirement. The
maximum is derived from the highest two years of creditable
Railroad Retirement or Social Security covered earnings in the
ten-year period ending with the year the employee's annuity
begins. The maximum cannot be more than the final average
monthly compensation and cannot be less than $1,200.
The maximum was enacted to limit benefits to a reasonable
``cap'' based on the employee's earnings at the time of
retirement and was intended to primarily apply to employees who
worked past age 65. However, the maximum has had the unintended
effect of reducing benefits for long-service retirees with
moderate earnings, and for retirees with no earnings or low
earnings in the ten-year period ending with the year the
employee's annuity begins.
Section 104 repeals the retirement maximum effective
January 1, 2002. The annuities of persons whose annuities were
reduced under the Railroad Retirement maximum are recalculated,
on a prospective basis. After the effective date, these persons
receive the amount that would have been payable had the maximum
not been applied to their benefits.
Sec. 105. Investment of railroad industry assets
Section 105(a) of the bill creates a new Railroad
Retirement Investment Trust (``Trust'') for tier 2 benefits
with authority to invest the assets of the Trust on behalf of
the Railroad Retirement Board (``RRB'') and to transfer funds
to a qualified financial institution appointed as a disbursing
agent for the payment of Railroad Retirement benefits. The
Trust would be established directly by the statute and would be
treated as domiciled in the District of Columbia. It shall be
governed by the laws of the District of Columbia to the extent
that those laws are not inconsistent with this legislation.
The Trust would not be treated as an agency or
instrumentality of the Federal government. The Board of
Trustees (``Trustees'') of the Trust would be comprised of
seven members: three members representing the interests of
labor; three members representing the interests of management;
and one member representing the interests of the general
public. The RRB would appoint the Trustees from among persons
who have experience and expertise in the management of
financial investments and pension plans and must unanimously
agree to each Trustee. The RRB would establish rules to provide
for (i) appropriate compensation for the services rendered to
the Trust by the Trustee representing the interests of the
general public and other trustees to the extent that such other
trustees are neither employed by railroad carriers or railway
labor organizations, and (ii) reimbursement of expenses
incurred by all Trustees with respect to Trust business.
The Trustees have the authority to employ professional
staff and shall contract with outside advisors to provide
legal, accounting, investment advisory or other services
necessary for proper administration of the Trust. To promote
efficient operation and eliminate unnecessary duplication, the
Trustees may contract with the RRB (on a full reimbursement
basis) to provide administrative services to the Trust;
provided, however, that the Trust must hire independent
advisors to meet its investment, fiduciary and reporting
obligations under the Act.
The Trustees would (i) retain independent advisors to
assist it in the formulation and adoption of its investment
guidelines; (ii) retain independent investment managers to
invest the assets of the Trust in a manner consistent with such
investment guidelines; and (iii) invest assets in the Trust,
pursuant to such guidelines. The Trustees also would transfer,
at the direction of the RRB, funds to the disbursing agent for
the payment of Railroad Retirement benefits. Administrative
costs would be funded from the assets of the Trust.
Five members of the Board of Trustees would constitute a
quorum to do business. Investment guidelines would be adopted
by a unanimous vote of the Trustees. All other decisions of the
Board of Trustees would be decided by majority vote.
The Trustees would be subject to reporting and fiduciary
standards parallel to Employee Retirement Income Security Act
(``ERISA'') requirements with respect to fiduciaries of private
employee pension benefit plans. These reporting and fiduciary
standards include general fiduciary obligations such as the
duty to act solely in the interest of the RRB, and through it,
in the interest of the participants and beneficiaries of the
programs funded under the Act; a duty to act with the care,
skill, prudence and diligence similar to that of a prudent
person in similar circumstances; a duty to diversify
investments and a duty to act in accordance with governing
documents. (These same fiduciary standards apply to the RRB
with respect to appointment of the Trustees.) With respect to
the Trustees, the bill contains prohibitions against self-
dealing activities such as dealing with the assets of the Trust
in the Trustee's own interest; prohibitions against Trustee
exculpatory provisions in any agreement or instrument (Trustees
may be covered by liability insurance); bonding requirements;
and an annual audit and report to Congress on the financial
status of the Trust. No rules similar to the ERISA funding
requirements of Part 3 of Title I of ERISA and related
provisions would apply to the Trustees, the Trust or Trust
assets.
The RRB is authorized to seek judicial enforcement of the
fiduciary standards applicable to the Trustees. Correlatively,
the Secretary of Labor may judicially enforce the fiduciary
standards governing RRB appointment of the Trustees.
The assets of the Trust transferred to it from the Railroad
Retirement Account and the Social Security Equivalent Benefit
(``SSEB'') Account would be held in trust for the RRB to pay
benefits and for the purpose of prudent investment of those
assets to generate investment income. As such, the Trust shall
not be subject to the Investment Company Act of 1940 and any
similar law. The Trust would be treated as falling within the
exemption in section 3(32) of ERISA for certain plans,
including those financed under the Railroad Retirement Act.
Consistent with the express exception in the Labor-Management
Relations Act (the ``LMRA'') excluding persons and individuals
subject to the Railway Labor Act from coverage under the LMRA
(29 U.S.C. Sec. 152(2)-(3)), the Trust would not be subject to
the LMRA.
Section 105(c) of the bill provides that the provisions of
section 105 shall take effect on the first day of the first
full month after the date of enactment.
Sec. 106. Elimination of supplemental annuity account
Current law (section 2(b) of the Railroad Retirement Act)
provides for a supplemental annuity for certain employees who
performed railroad service in at least one month prior to
October 1, 1981. The supplemental annuity is funded entirely
through a tax on employers, currently set at 26.0 cents per
hour. Approximately one-third of the taxes collected each year
is not needed to fund supplemental annuities and is transferred
to the Railroad Retirement Account (``RRA''), where it is used
to pay tier 2 benefits.
Section 106 repeals section 15(c) of the Railroad
Retirement Act, which establishes a separate Railroad
Retirement Supplemental Account. The supplemental annuity tax
is repealed in section 202. Both provisions would be effective
January 1, 2002. The supplemental annuity benefit provisions of
the Railroad Retirement Act are not affected and supplemental
annuities will be funded from the new Trust.
Sec. 107. Transfer authority revisions
Section 107(a) of the bill provides that, once the Trust
has been established pursuant to Section 105, the RRB would
determine from time to time what portion of the Railroad
Retirement Account is not needed to pay current administrative
expenses. The Board would then direct the Secretary of Treasury
to transfer that portion to the Trust.
Section 107(b) provides that the Investment Trust shall
from time to time transfer to a qualified non-governmental
financial institution (``Disbursing Agent'') amounts necessary
to pay tier 2 and supplemental annuity benefits, and
administrative expenses related to those benefits.
Section 107(c) provides that the RRB would from time to
time determine the amount of the balance in the SSEB Account
that is in excess of the amount needed to pay current benefits,
and direct the Secretary of the Treasury to transfer such
excess amount to the Trust. Amounts transferred to the Trust
from the SSEB Account shall be used by the Trust only to pay
benefits under the Act or to purchase U.S. Government
securities. This subsection also provides that the Secretary of
Treasury shall be authorized to transfer from the SSEB Account
to the Disbursing Agent amounts necessary to pay SSEB benefits.
Section 107(d) provides that the Secretary of Treasury
shall be authorized to transfer from the Dual Benefits Payments
Account to the Disbursing Agent amounts necessary to make Dual
Benefit payments.
Section 107(e) of the bill requires the RRB, in
consultation with the Trustees and the Secretary of the
Treasury, to contract with a Disbursing Agent to serve as payer
with respect to all benefits payable under the Railroad
Retirement Act. The RRB would certify the amounts due to each
individual to the Secretary of the Treasury who, in turn, would
direct the Disbursing Agent to make payment of benefits. All
Railroad Retirement benefits due to an individual, from
whatever source, would be consolidated by the Disbursing Agent
into a single monthly check or transfer to the beneficiary. The
Board would certify to the Trust the amount of funds to be
transferred to the Disbursing Agent to fund payment of
benefits. The RRB would continue to pay all benefits as under
the law in effect prior to enactment until the Disbursing Agent
is selected.
Section 107(f) of the bill provides that benefits, as
determined by the RRB, would be paid by the Disbursing Agent,
from money transferred to it by the Trust.
Section 107(g) of the bill gives the RRB, in consultation
with the Secretary of the Treasury, the discretion to either
hold or convert to cash obligations held as of the date of
enactment.
Sec. 108. Annual Ratio Projections and Certifications by the Railroad
Retirement Board
Section 108 of the bill would make the RRB responsible for
making annual projections of the account benefits ratio and the
average account benefits ratio for each of the next succeeding
five years on or before May 1 of each year beginning in 2003.
The average account benefits ratio is the average of the
account benefits ratios for the 10 most recent fiscal years
ending before such calendar year. The bill defines the term
``account benefits ratio'' as the amount determined by dividing
the fair market value of the assets in the Railroad Retirement
Account and the Trust (and for years before 2001, the Social
Security Equivalent Benefits Account) as of the close of such
fiscal year by the total benefits and administrative expenses
paid from the Railroad Retirement Account and the Trust during
such fiscal year. On or before November 1, 2003, the Railroad
Retirement Board will compute the account benefits ratio and
certify it to the Secretary of Treasury.
TITLE II
Sec. 201. Amendment to the Internal Revenue Code of 1986
This section provides that all references in Title II that
are expressed in terms of an amendment to, or repeal of, a
section or other provision, are to a section or other provision
of the Internal Revenue Code of 1986.
Sec. 202. Tax Exemption for Railroad Retirement Investment Trust
Section 202 provides for tax-exemption of the Trust.
Sec. 203. Repeal of Supplemental Annuity Tax
The supplemental annuity is financed by an excise tax
imposed on employee representatives and employers under
sections 3211(b), 3221(c), and 3221(d) of the Internal Revenue
Code. The amendment made by section 203 repeals this excise
tax, effective for calendar years after 2001. (See also,
section 106.)
Sec. 204. Employer, Employee Representative, and Employee Tier 2 Tax
Rate Adjustments
Section 204(a) would amend section 3221(b) of the Internal
Revenue Code to reduce the tier 2 tax rate on employers for
calendar years 2002 and 2003 from the current rate of 16.1% to
15.6% and 14.2%, respectively. For years thereafter, the tier 2
tax rate would be determined under a new section 3241 that
would be added by section 204(d) of the bill.
Section 204(b) would make similar changes in the tier 2 tax
rates imposed on employee representatives under section 3211 of
the Internal Revenue Code. Employee representatives would pay a
tier 2 tax of 14.75% in calendar year 2002 and 14.20% in
calendar year 2003. As with the tier 2 tax rate for employers,
the tier 2 tax rate for years after 2003 would be determined
under the new section 3241.
There would be no change in the tier 2 tax rate for
employees in the years 2002 and 2003. However, for calendar
years after 2003, the employee tier 2 tax rate would be
determined under the new section 3241.
Section 204(d) provides for the determination of the tier 2
tax rates applicable to employers, employee representatives,
and employees for calendar years after 2003. The rates would be
based on the account benefits ratio, which is defined as the
fair market value of assets in the RRA and of the Trust as of
the close of the fiscal year divided by the total benefits and
administrative expenses paid from the RRA and the Trust during
such fiscal year. For the years before 2002, the assets of the
SSEB Account are also included in the calculation of the
account benefits ratio. Depending on the average account
benefits ratio, tier 2 tax rates for employers and employee
representatives would fall within a range between 8.2% and
22.1%, while the tax rate for employees would be between 0% and
4.9%.\4\
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\4\ The Labor-Management Agreement provides that, after the
enactment of this legislation, employee representatives may elect to
convert any amount by which the employee rate is projected to be less
than 4.9% into an expanded retirement benefit. The cost of this new
benefit shall not exceed, on a 75-year percentage of payroll basis, the
benefit of this projected difference. If any additional benefit is
enacted, the future enabling legislation shall provide that the
employee tax rate that otherwise would be effective under the statutory
schedule will be increased by the cost (on a 75-year percentage of
payroll basis) of such benefit, or at the employee representative's
election, that the benefits will terminate if the average account
benefits ratio goes below 6. Management has agreed to support future
legislation providing for any such conversion consistent with this
policy.
---------------------------------------------------------------------------
The Secretary of Treasury would use the account benefits
ratio to calculate the average account benefits ratio (the
average of the account benefits ratios for the ten most recent
fiscal years) and to determine the tier 2 tax rates in
accordance with the schedule set forth in 3241(b). In order to
calculate the average account benefits ratio in the first year,
on or before November 1, 2003, the RRB would compute the
account benefits ratios for each of the ten consecutive fiscal
years, ending with the most recent fiscal year and certify each
of the account benefits ratios to the Secretary. No later than
December 1 of each year, the Secretary would publish a notice
in the Federal Register of the rates of tax determined under
section 3241 which are applicable for the following year.
Conclusion
H.R. 1140 is a landmark piece of legislation that provides
benefits for all the participants in the railroad retirement
system. It modernizes and strengthens the financing of the
program while also providing for improved retirement benefits
for railroad workers and their families.
Rollcall Votes
Clause 3(b) of rule XIII of the House of Representatives
requires each committee report to include the total number of
votes cast for and against on each rollcall vote on a motion to
report and on any amendment offered to the measure or matter,
and the names of those members voting for and against. There
were no rollcall votes on this legislation.
Committee Oversight Findings
With respect to the requirements of clause 3(c)(1) of rule
XIII of the Rules of the House of Representatives, oversight
findings and recommendations have been made by the Committee as
reflected in this report.
Cost of Legislation
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is satisfied where a cost estimate and
comparison prepared by the Director of the Congressional Budget
Office (CBO) under section 402 of the Congressional Budget Act
of 1974 has been timely submitted prior to the filing of the
report and is included in the report. The cost estimate
prepared by the Director of the CBO is included with this
report.
Compliance With House Rule XIII
1. With respect to the requirement of clause 3(c)(2) of
rule XIII of the Rules of the House of Representatives, and
308(a) of the Congressional Budget Act of 1974, the Committee
references the report of the Congressional Budget Office has
not been received. When available, it will be printed in the
Congressional Record.
2. With respect to clause 3(c)(4) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance and objectives for which any
measure authorizes funding is required.
3. With respect to the requirement of clause 3(c)(3) of
rule XIII of the Rules of the House of Representatives and
section 402 of the Congressional Budget Act of 1974, a cost
estimate from the Director of Congressional Budget Office (CBO)
is included with this report.
CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
H.R. 1140--Railroad Retirement and Survivors' Improvement Act of 2001
Summary: H.R. 1140 would make several changes to the
Railroad Retirement program. The bill would expand benefits for
certain participants in the program and reduce the number of
years of covered railroad service needed before a worker (and
qualified spouse) can be vested in the system. The legislation
would also eliminate the Supplemental Annuity tax and lower the
payroll tax rate on railroad employers. Finally, the bill would
create a new Railroad Retirement Investment Trust and establish
a board to manage this fund. That board would be authorized to
invest the reserves of the Railroad Retirement System in
private securities.
Assuming that investments in private securities are treated
as budget outlays, as specified in OMB Circular A-11, CBO
estimates that H.R. 1140 would increase direct spending by
$13.8 billion during the 2002-2006 period and by $10.6 billion
over the 2002-2011 period. It would reduce revenues by $1.7
billion from 2002 through 2006 and by $4.0 billion in the 10-
year period. Because the bill would affect direct spending and
receipts, pay-as-you-go procedures would apply. The net effect
of H.R. 1140 would be to decrease the budget surplus by $15.5
billion from 2002 through 2006 and by $14.6 billion over the
2002-2011 period. Because there is little precedent for the
purchase of private securities by the federal government,
alternative budgetary treatments are possible that could
substantially alter the budgetary impact.
The legislation contains no intergovernmental or private-
sector mandates as defined in the Unfunded Mandates Reform Act
(UMRA) and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 1140 is summarized in Table 1. The
costs of this legislation fall within budget function 600
(income security).
TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 1140
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING
Benefit Changes:
Expansion of Widow/er Benefits.......... 0 83 92 94 95 97 100 102 104 106 108
Reduction in Retirement Age............. 0 37 121 192 228 259 305 359 397 420 443
Reduction in Vesting Requirements....... 0 (\1\) (\1\) (\1\) (\1\) (\1\) 1 1 1 1 2
Repeal of Ceiling on Railroad Retirement 0 11 14 15 16 18 19 20 22 24 25
Benefits...............................
-----------------------------------------------------------------------------------------------------------
Subtotal.............................. 0 131 227 301 339 374 425 481 523 550 578
Investment in non-Treasury Securities \2\... 0 15,320 -460 -660 -830 -920 -990 -1,060 -1,140 -1,250 -1,340
-----------------------------------------------------------------------------------------------------------
Total................................. 0 15,451 -233 -359 -491 -546 -565 -579 -617 -700 -762
-----------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Repeal of Supplementary Annuity Tax \3\..... 0 -59 -79 -81 -79 -77 -76 -75 -75 -74 -74
Adjustment in Tier II Tax Rate \3\.......... 0 -59 -198 -329 -362 -366 -374 -379 -383 -384 -386
-----------------------------------------------------------------------------------------------------------
Total................................. 0 -118 -277 -410 -441 -443 -450 -454 -458 -458 -460
TOTAL CHANGES IN THE BUDGET SURPLUS
Increase or Decrease (-) in the Surplus..... 0 -15,569 -44 -51 50 103 115 125 159 242 302
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
\2\ The budgetary treatment of this provision follows the instructions in OMB Circular A-11. CBO assumes that the investment board will maintain 20
percent of the portfolio in U.S. Treasury securities, 20 percent in corporate securities, and 60 percent in private equities.
\3\ Assumes that 20 percent of employer-paid payroll tax reductions are offset by additional income and employee-paid tax collections.
Note.--Components may not sum to totals because of rounding.
Basis of estimate: The Railroad Retirement system has two
main components. Tier I of the system is financed by taxes on
employers and employees equal to the Social Security payroll
tax and provides qualified railroad retirees (and their
qualified spouses, dependents, widows, or widowers) with
benefits that are roughly equal to Social Security. Covered
railroad workers and their employers pay the Tier I tax instead
of the Social Security payroll tax, and most railroad retirees
collect Tier I benefits instead of Social Security. Tier II of
the system operates much like traditional multi-employer
pension systems, with employers and employees contributing a
certain percentage of pay toward the system to finance defined
benefits to eligible railroad retirees (and qualified spouses,
dependents, widows, or widowers) upon retirement. But while
most multi-employer plans are run by a group of cooperating
employers in the same industry, the federal government collects
the Tier II payroll contribution and pays out the benefits.
H.R. 1140 would make fundamental changes to the Railroad
Retirement system by expanding certain retirement benefits,
reducing payroll taxes, and authorizing a new government
organization to invest funds credited to the Railroad
Retirement Account in the private securities market. In
addition, the bill would eliminate the separate account for
supplemental benefits and pay those benefits directly from the
Railroad Retirement Investment Trust.
CBO assumes an enactment date of September 30, 2001.
Direct spending
H.R. 1140 would make several changes in Railroad Retirement
benefits, including
Expanding benefits for qualified widows and
widowers;
Reducing the normal retirement age for Tier
I benefits to 60;
Reducing the system's vesting requirements;
and
Repealing the cap on the Railroad Retirement
benefits.
The bill also would establish a new entity called the
Railroad Retirement Investment Trust, which would be
responsible for investing the reserves of the Railroad
Retirement System in private securities, as well as in U.S.
Treasury Securities. Without changes in law, CBO estimates that
outlays for the Railroad Retirement benefits will be 8.5
billion in fiscal year 2002 and will grow to $10.5 billion by
2011.
Benefit changes. The four changes in Railroad Retirement
benefits (described below) would increase spending by $0.1
billion in 2002 and by $3.9 billion over the 2002-2011 period.
A fifth change, which would have no budgetary effects, would
shift the payment of the Supplemental Annuity from its separate
account to the Railroad Retirement Investment Trust.
Expansion of Widows' and Widowers' Benefits. Section 101 of
the legislation would increase Railroad Retirement annuities
payable to certain widows and widowers of railroad employees.
Under current law, the Tier II component of a widow(er)'s
Railroad Retirement annuity is generally equal to 50 percent of
the Tier II benefit that was payable to the retired employee at
the time of his or her death. Section 101 would provide a
guaranteed minimum benefit for widow(er)s based on 100 percent
of the employee's Tier II annuity. This provision would
generally provide widow(er)s with the same Tier II benefits
that were previously being paid to the now deceased railroad
retiree.
Section 101 would apply to benefits paid in months
beginning 30 days after the bill is enacted. For widow(er)s
whose benefits begin before that date, the guaranteed minimum
would be based on the amount of the original annuity without
adjustment for inflation.
According to the Railroad Retirement Board, this would
initially affect approximately 50,000 widow(er)s currently
collecting benefits. CBO estimates this provision would
increase direct spending by $83 million in 2002 and by $979
million during the 2002-2011 period.
Reduction in Retirement Age. Section 102 of the legislation
would provide for full retirement benefits at age 60 for
railroad workers (and qualified spouses) who have at least 30
years of covered service. Under current law, retirees with 30
years of service may begin collecting full Tier II benefits at
age 60, but Tier I benefits are reduced if they file before the
age of 62. This legislation would eliminate that reduction in
Tier I benefits, which was enacted in the Railroad Solvency Act
of 1983. Based on data provided by the Railroad Retirement
Board, CBO estimates this provision would initially affect
about 2,500 workers and would increase direct spending by $37
million in 2002 and by $2.8 billion over the 2002-2011 period.
Reduction in Vesting Requirement. Section 103 would reduce
the number of years of covered service needed before workers
(and qualified spouses) become vested in the Railroad
Retirement System from 10 years to five years. The reduced
vesting requirement would only apply to qualified service
performed after 1995. Employees who had fewer than 10 years of
qualified railroad employment before 1996 would either have to
meet the current 10-year vesting requirement or have five years
of covered service after 1995 in order to be vested. Section
103 would correspondingly reduce the vesting requirements for
disability and survivor benefits.
Based on information provided by the Railroad Retirement
Board, CBO estimates this proposal would have a negligible
effect on direct spending through 2006, but would increase
direct spending by $6 million during the 2007-2011 period.
Repeal of the Ceiling on Railroad Retirement Benefits.
Current law caps the total monthly benefits payable to a
retiree and spouse under the Railroad Retirement system. This
cap is calculated based on the employee's average monthly
salary during the two years prior to retirement, or the
worker's monthly Social Security earnings in the 10-year period
prior to retirement. The maximum cannot be more than the final
average monthly compensation and cannot be less than $1,200.
Section 104 would repeal this limit, effective January 1, 2002.
The Railroad Retirement Board indicates that about 2,000
employee annuitants and 12,000 spouse annuitants currently
collect reduced benefits because of the cap. CBO estimates that
eliminating the Railroad Retirement maximum would increase
direct spending by $11 million in 2002 and by $182 million from
2002 through 2011.
Investment in Non-Treasury Securities. Section 105 of H.R.
1140 would establish a new entity, the Railroad Retirement
Investment Trust, which would be allowed to invest in non-
Treasury securities, such as publicly traded stocks in private
companies. By law, the fund's assets, which CBO estimates will
total about $19.2 billion in December 2001, now consist solely
of U.S. government securities. Because those securities are the
safest possible investment, they generally earn a lower rate of
return than riskier instruments like corporate stocks and
bonds. Similar restrictions apply to the investment policies of
each major federal trust fund--Social Security, Medicare, Civil
Service Retirement, Military Retirement, the Highway Trust
Fund, and others. H.R. 1140 would make Railroad Retirement an
exception to that rule.
Estimate Under Current Budgetary Treatment. The current
budgetary treatment of federal investments in non-Treasury
financial instruments is specified in the Office of Management
and Budget (OMB) Circular A-11, which states that the purchases
of such securities should be displayed as outlays and the sales
of such securities and returns such as dividends and interest
payments should be treated as offsetting receipts or
collections. Under this budgetary treatment, this bill's
authorization for such investment practices would increase
outlays by $15.3 billion in 2002. Beginning in 2003, however,
most proceeds from stock dividends and sales would be used to
pay benefits because tax revenues would not be sufficient to
fund all benefits payments. Thus, the new investment practices
result in decreased outlays beginning in 2003, and net spending
of $6.7 billion over the 10-year period.
As required by the bill, funds currently held in the
Railroad Retirement Account and the Social Security Equivalent
Benefit Account that are not currently needed to pay benefits
would be transferred to the newly created Railroad Retirement
Investment Trust. CBO assumes that about $19.2 billion in those
accounts would be transferred on December 31, 2001, and would
promptly be invested in various financial instruments. Based on
the practices of other multi-employer pension plans, CBO
further assumes the managers of the fund would keep 20 percent
of the investments in U.S. Treasury securities, 20 percent in
high-grade corporate bonds, and the remaining 60 percent in
equities. Because purchases of Treasury securities are not
considered outlays, only 80 percent of the initial investments
of the fund would be shown as federal outlays. The estimates
assume that Treasury securities yield about a 6 percent return,
high-grade corporate bonds a 7 percent return, and equities a 9
percent return. The assumption of returns on Treasury
securities is based on CBO's January 2001 economic projections,
while the assumed returns on corporate bonds and equities are
consistent with the 1999 report of the Technical Panel on
Assumptions and Methods to the Social Security Advisory Board.
Current Budgetary Treatment vs. Possible Alternatives. For
most federal programs, accounting for outlays is
straightforward. The federal government buys goods and
services--such as defense and medical care--and makes transfer
payments like Social Security and payments for Food Stamps by
issuing a check or its equivalent. Those payments are counted
as outlays when they are issued. The A-11 treats the purchases
of assets--financial or physical--in the same way. The purchase
price simply appears as a federal outlay. Specifically, the A-
11 states:
[w]e treat an investment in non-U.S. securities (equity
or debt securities) as a purchase of an asset. You must
record an obligation and an outlay for the purchase in
an amount equal to the purchase price. * * * You record
interest received on such investments as a collection
when you receive it and in the amount that you receive.
* * * You record the proceeds from the sale or
redemption of a non-U.S. security as a collection when
received and in the amount received.
In contrast, the A-11 directs that U.S. securities be
treated as equivalent to cash, and tells agencies to count
transactions involving such securities as a change in the mix
of asset holdings rather than as a purchase or sale of assets.
Thus, purchases of non-Treasury securities are deemed to be
outlays under the A-11 guidelines, but purchases of Treasury
securities are not. In practice, this difference has been of
little consequence because the government has only rarely
acquired non-Treasury securities.
Some budget experts think that this long-standing practice
is ill-suited to purchases of financial assets that the
government acquires as a way of preserving (or enhancing) the
value of cash balances. (For example, the current treatment
would dictate that if current or future budget surpluses were
entirely invested in non-Treasury securities, the budget would
record government expenditures equal to receipts, which might
not be a useful indicator of the government's financial
condition.) It can also be argued that purchases of financial
assets in order to preserve or enhance the value of cash
balances are very different in nature, and should be treated
differently in the budget, than purchases of goods and
services, entitlement benefits, grants, employees' salaries,
and other programmatic or operational activities of the
government. Consequently, some analysts have argued that these
purchases should not be treated as outlays, but rather as a
means of financing the activities of the federal government. In
this estimate, CBO has followed the instructions of the A-11,
but we may consider a different budgetary treatment in the
future.
Revenues
H.R. 1140 would make several changes to the payroll tax
specified in the Railroad Retirement Act, and would result in
estimated net revenue losses of $0.1 billion in 2002 and $4.0
billion over the 10-year period. Because reductions in
employer-paid employment taxes are assumed to be passed through
to workers as higher compensation, mostly in the form of wages,
increased income and employee-paid payroll tax collections are
assumed to offset 20 percent of the lost payroll tax revenues.
Supplemental Annuity Tax. Section 203 of the bill would
repeal the Supplemental Annuity tax, which is currently levied
on employers to pay for a third layer of benefits on top of
Tier I and Tier II. Instead of being paid from a separate
account, supplemental benefits would be paid directly from the
Railroad Retirement Account. Based on information provided by
the Railroad Retirement Board, CBO estimates that this
provision would reduce net revenue by $375 million over the
2002-2006 period and by $749 million over the 2002-2011 period.
Tier II Payroll Tax Rates. The bill would also lower the
Tier II tax rate on employers from its current level of 16.1
percent to 14.75 percent in calendar year 2002 and 14.2 percent
in calendar year 2003. Thereafter, H.R. 1140 would link future
Tier II tax rates to the financial condition of the Railroad
Retirement Investment Trust (see Table 2). Specifically, the
bill would require the Railroad Retirement Board to calculate
the ratio of assets held in the trust fund (using the average
balance in the fund over the previous 10 years) to the total
Railroad Retirement benefits paid out in a given year (the
account benefit or trust fund ratio). In 2004, CBO expects the
account benefit ratio would be about 5.6, which would cause
payroll tax rates to be set at 13.1 for employers and 4.9 for
employees (which is the current rate for employees). CBO
estimates that the Tier II tax rates will remain at that level
through at least 2011 and that the changes in the tax rate
would reduce revenue by $1.3 billion over the 2002-2006 period
and $3.2 billion from 2002 through 2011. (Under current law,
CBO estimates that Tier II tax revenues will total about $31
billion over the 2002-2011 period.)
If, however, the account benefit ratio rises or falls below
expectations, a change in payroll tax rates could be triggered
by the bill. For instance, if the board determined that this
ratio had gone above 6.0, then the Tier II payroll tax rate for
both employers and employees would be reduced. Conversely, if
the board determined that the ratio had fallen below 4.0, then
the payroll tax for railroad employers would increase.
Under reasonable assumptions about railroad employment and
investment income to the trust fund, CBO estimates that neither
outcome would occur during the next 10 years. For example, if
the new trust fund held only Treasury securities, the account
benefit ratio would fall from 6.0 today to 5.1 by 2011. If the
trust fund were invested in a wider variety of securities, and
the rates of return matched CBO's assumptions, the ratio would
be roughly 5.8 in 2011.
Although that conclusion represents CBO's best judgment,
the unexpected could happen. For example, rapid growth in the
railroad industry's payroll or spectacular returns in the stock
market could trigger tax cuts by 2011. On the other hand,
employment that is significantly lower than expected or a drop
in stock values could lead to automatic tax increases.
TABLE 2.--DETERMINATION OF TIER II TAX RATE
------------------------------------------------------------------------
If the account benefit ratio is: The Tier II tax rates would be:
------------------------------------------------------------------------
At least But less than For employers For employees
------------------------------------------------------------------------
0 2.5 22.1 4.9
2.5 3.0 18.1 4.9
3.0 3.5 15.1 4.9
3.5 4.0 14.1 4.9
4.0 6.1 13.1 4.9
6.1 6.5 12.6 4.4
6.5 7.0 12.1 3.9
7.0 8.5 11.6 3.4
7.5 8.0 11.1 2.9
8.0 8.5 10.1 1.9
8.5 9.0 9.1 0.9
9.0 NA 8.2 0
------------------------------------------------------------------------
Note.--The account benefit ratio is calculated by dividing average trust
fund assets over the previous 10 years by the total Railroad
Retirement benefits paid in a given year.
NA = Not applicable.
Pay-as-you-go-considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending and receipts. The net
changes in outlays and governmental receipts that are subject
to pay-as-you-go procedures are shown in Table 3. For the
purposes of enforcing pay-as-you-go procedures, only the
effects in the current year, the budget year, and the
succeeding four years are counted.
TABLE 3.--ESTIMATED EFFECTS OF H.R. 1140 ON DIRECT SPENDING AND RECEIPTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays..................................... 0 15,451 -233 -359 -491 -546 -565 -579 -617 -700 -762
Changes in receipts.................................... 0 -118 -277 -410 -441 -443 -450 -454 -458 -458 -460
--------------------------------------------------------------------------------------------------------------------------------------------------------
Intergovernmental and private-sector impact: H.R. 1140
contains no intergovernmental or private-sector mandates as
defined by UMRA and would impose no costs on state, local, or
tribal governments.
Comparison with other estimates: The Railroad Retirement
Board has prepared an estimate of the individual benefit
increases and projected trust fund holdings under H.R. 1140.
The board's estimate contains trust fund projections using
three different assumptions about employment levels in the
railroad industry.
Using the middle employment assumption, which CBO believes
is the most realistic, the Railroad Retirement Board estimates
that the cost of benefits under H.R. 1140 would increase by
$1.4 billion from 2002 through 2006 and by $3.9 billion during
the 2002-2011 period, slightly more than CBO estimates. In
addition, the board estimates that revenues from Tier II
payroll taxes would decrease by $1.5 billion from 2002 through
2006 and $3.6 billion over the 2002-2011 period. The board's
estimates do not include any impact the lower employer-paid
payroll taxes might have on income and employee-paid payroll
tax receipts. On a comparable basis, excluding impacts on
income and employee-paid payroll tax receipts, CBO estimates
Tier II revenue losses of $1.6 billion over five years and $4.0
billion over 10 years. Both the board and CBO estimate that
balances in the new trust fund would rise steadily over time,
but would not be high enough to trigger a reduction in the
payroll tax during the next 10 years.
Estimate prepared by: Federal Costs: Geoffrey Gerhardt and
Ed Harris. Impact on State, Local, and Tribal Governments: Leo
Lex. Impact on the Private Sector: Ralph Smith.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis.
Constitutional Authority Statement
Pursuant to clause (3)(d)(1) of rule XIII of the Rules of
the House of Representatives, committee reports on a bill or
joint resolution of a public character shall include a
statement citing the specific powers granted to the Congress in
the Constitution to enact the measure. The Committee on
Transportation and Infrastructure finds that Congress has the
authority to enact this measure pursuant to its powers granted
under article I, section 8 of the Constitution.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act. (Public Law 104-4.)
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to the Legislative Branch
Because the legislation applies only to railroad employers
and employees, the Committee finds that the legislation does
not relate to the terms and conditions of employment or access
to public services or accommodations within the meaning of
section 102(b)(3) of the Congressional Accountability Act.
(Public Law 104-1.)
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
RAILROAD RETIREMENT ACT OF 1974
* * * * * * *
annuity eligibility requirements
Sec. 2. (a)(1) The following-described individuals, if they
shall have completed ten years of service (or, for purposes of
paragraphs (i), (iii), and (v), five years of service, all of
which accrues after December 31, 1995) and shall have filed
application for annuities, shall, subject to the conditions set
forth in subsections (e), (f), and (h), be entitled to
annuities in the amounts provided under section 3 of this Act--
(i) * * *
* * * * * * *
(4) An individual who is entitled to an annuity under
paragraph (v) of subdivision (1), but who does not have at
least ten years of service, shall, prior to the month in which
the individual attains age 62, be entitled only to an annuity
amount computed under section 3(a) of this Act (without regard
to section 3(a)(2) of this Act) or section 3(f)(3) of this Act.
Upon attainment of age 62, such an individual may also be
entitled to an annuity amount computed under section 3(b), but
such annuity amount shall be reduced for early retirement in
the same manner as if the individual were entitled to an
annuity under section 2(a)(1)(iii).
* * * * * * *
(d)(1) The following described survivors of a deceased
employee who will have completed ten years of service (or five
years of service, all of which accrues after December 31, 1995)
and will have had a current connection with the railroad
industry at the time of his death shall, subject to the
conditions set forth in subsections (g) and (h), be entitled to
annuities, if they have filed application therefor, in the
amounts provided under section 4 of this Act--
(i) * * *
* * * * * * *
(i) An individual entitled to an annuity under this section
who has completed five years of service, all of which accrues
after 1995, but who has not completed ten years of service, and
the spouse, divorced spouse, and survivors of such individual,
shall not be entitled to an annuity amount provided under
section 3(a), section 4(a), or section 4(f) of this Act unless
the individual, or the individual's spouse, divorced spouse, or
survivors, would be entitled to a benefit under title II of the
Social Security Act on the basis of the individual's employment
record under both this Act and title II of the Social Security
Act.
computation of employee annuities
Sec. 3. (a)(1) * * *
(2) For purposes of this subsection, individuals entitled to
an annuity under section 2(a)(1)(ii) of this Act shall, except
for the purposes of recomputations in accordance with section
215(f) of the Social Security Act, be deemed to have attained
retirement age (as defined by section 216(l) of the Social
Security Act). For purposes of this subsection, individuals
entitled to an annuity under paragraph (iv) or (v) of such
section 2(a)(1) shall be deemed to be entitled to a disability
insurance benefit under section 223 of the Social Security Act.
[(3) In lieu of an annuity amount provided under subdivision
(1), the annuity of an individual entitled to an annuity under
paragraph (ii) of section 2(a)(1) of this Act which begins to
accrue before the individual attains age 62 shall be in an
amount equal to--
[(i) for each month prior to the first month
throughout which the individual is age 62, the amount
(after any reduction on account of age but before any
deductions on account of work) of the old-age insurance
benefit to which such individual would have been
entitled under the Social Security Act as of the date
on which such individual's annuity begins to accrue if
such individual had attained age 62 on the first day of
the month in which his or her annuity begins to accrue
and if all of such individual's service as an employee
after December 31, 1936, had been included in the term
``employment'' as defined in that Act, using for
purposes of this computation the number of benefit
computation years applicable to a person born in the
year in which such individual was born; and
[(ii) for months beginning with the first month
throughout which the individual is age 62, the amount
(after any reduction on account of age but before any
deductions on account of work) of the old-age insurance
benefit to which such individual would have been
entitled under the Social Security Act if all of such
individual's service as an employee after December 31,
1936, had been included in the term ``employment'' as
defined in that Act.]
(3) If an individual entitled to an annuity under section
2(a)(1)(i) or (iii) of this Act on the basis of less than ten
years of service is entitled to a benefit under section 202(a),
section 202(b), or section 202(c) of the Social Security Act
which began to accrue before the annuity under section
2(a)(1)(i) or (iii) of this Act, the annuity amount provided
such individual under this subsection, shall be computed as
though the annuity under this Act began to accrue on the later
of (A) the date on which the benefit under section 202(a),
section 202(b), or section 202(c) of the Social Security Act
began, or (B) the date on which the individual first met the
conditions for entitlement to an age reduced annuity under this
Act other than the conditions set forth in sections 2(e)(1) and
2(e)(2) of this Act and the requirement that an application be
filed.
* * * * * * *
(f)[(1) If the total amount of an individual's annuity and
supplemental annuity computed under the preceding subsections
of this section would, before any reductions on account of age,
before any reduction due to such individual's entitlement to a
monthly insurance benefit under the Social Security Act, and
disregarding any increases in such total amount which become
effective after the date on which such individual's annuity
under section 2(a)(1) of this Act begins to accrue, exceed an
amount equal to the sum of (A) 100 percentum of his ``final
average monthly compensation'' up to an amount equal to 50
percentum of one-twelfth of the maximum annual taxable
``wages'' (as defined in section 3121 of the Internal Revenue
Code of 1954) for the calendar year in which such individual's
annuity under section 2(a)(1) of this Act begins to accrue,
plus (B) 80 percentum of so much of his ``final average monthly
compensation'' as exceeds 50 percentum of one-twelfth of the
maximum annual taxable ``wages'' (as defined in section 3121 of
the Internal Revenue Code of 1954) for the calendar year in
which such individual's annuity under section 2(a)(1) of this
Act begins to accrue, the supplemental annuity of such
individual first, and then, if necessary, the annuity amount of
such individual as computed under subsection (b) of this
section, shall be reduced until such total amount of such
individual's annuity and supplemental annuity equals such sum
or until such supplemental annuity and such annuity amount
computed under subsection (b) of this section are reduced to
zero, whichever occurs first: Provided, however, That the
provisions of this subdivision shall not operate to reduce the
total amount of an individual's annuity and supplemental
annuity computed under the preceding subsections of this
section below $1,200. For purposes of this subdivision, the
``final average monthly compensation'' of an individual shall
except as provided in the following sentence be determined by
dividing the total compensation received by such individual in
the two calendar years, consecutive or otherwise, in which he
was credited with the highest total compensation during the
ten-year period ending with December 31 of the year in which
such individual's annuity under section 2(a)(1) of this Act
begins to accrue by 24. If the individual's ``average monthly
compensation'' is determined under subdivision (2) of
subsection (b) of this section, the ``final average monthly
compensation'' for such individual shall be the average of the
compensation for the 24 months in which the compensation
determined for the purpose of subdivision (2) of subsection (b)
of this section is the highest. For purposes of this
subdivision, the term ``compensation'' shall include
``compensation'' as defined in section 1(h) of this Act,
``wages'' as defined in section 209 of the Social Security Act,
``self-employment income'' as defined in section 211(b) of the
Social Security Act, and wages deemed to have been paid under
section 217 or 229 of the Social Security Act on account of
military service: Provided, however, That in no case shall the
compensation with respect to any calendar month exceed the
limitation on the compensation for such month prescribed in
subsection (j) of this section. Wages and self-employment
income included as compensation for purposes of this
subdivision shall, in the absence of evidence to the contrary,
be presumed to have been paid in equal proportions with respect
to all months in the calendar quarter in which credited, in the
case of wages paid before 1978, or in equal proportions with
respect to all months in the calendar year in which credited,
in the case of self-employment income and in the case of wages
paid after 1977.]
[(2)] (1) If, in the case of an individual whose annuity
under section 2(a)(1) of this Act began to accrue prior to
January 1, 1983, the annuity (before any reduction due to such
individual's entitlement to a monthly insurance benefit under
the Social Security Act and disregarding any amount provided by
subsection (h) of this section) plus the supplemental annuity
to which such individual is entitled for any month under this
Act, together with the annuity, if any, of the spouse of such
individual (before any reduction due to such spouse's
entitlement to a wife's or husband's insurance benefit under
the Social Security Act and disregarding any amount provided by
section 4(e) of this Act, before any reductions under the
provisions of section 2(f) of this Act, is less than the total
amount which would have been payable to such individual and his
spouse for such month, on the basis of the individual's
compensation and years of service, under the provisions of the
Railroad Retirement Act of 1937 as in effect on December 31,
1974, disregarding, for purposes of the computations under such
Railroad Retirement Act of 1937, compensation for any month
after December 31, 1974, in excess of one-twelfth of the
maximum annual taxable ``wages'' (as defined in section 3121 of
the Internal Revenue Code of 1954) for the calendar year 1974,
the annuity of such individual and the annuity of such spouse,
if any, shall be increased[, without regard to the provisions
of subdivision (1) of this subsection,] proportionately so as
to equal such total amount. For the purpose of computing
amounts under this subdivision, the Board shall have the
authority to approximate the effect of the reductions
prescribed by sections 3(a)(2) and 3(a)(3) of the Railroad
Retirement Act of 1937. For purposes of computing amounts
payable under the Railroad Retirement Act of 1937, any
increases in the amounts determined under the first proviso of
section 3(e) of such Act which would have become effective
after December 31, 1974, shall be disregarded.
[(3)] (2) If for any month in which an annuity accrues and is
payable under this Act the annuity to which an individual is
entitled under this Act (or would have been entitled except for
a reduction pursuant to a joint and survivor election),
together with the annuity, if any, of the spouse and divorced
wife of such individual, is less than the total amount, or the
additional amount, which would have been payable to all persons
for such month under the Social Security Act if such
individual's service as an employee after December 31, 1936,
were included in the term ``employment'' as defined in that
Act, the annuities of the individual and spouse shall be
increased proportionately to such total amount, or such
additional amount: Provided, however, That if an annuity
accrues to an individual or a spouse for a part of a month, the
amount payable for such part of a month under this subdivision
shall be one-thirtieth of the amount payable under this
subdivision for an entire month, multiplied by the number of
days in such part of a month. For purposes of this subdivision,
(i) persons not entitled to an annuity under section 2 of this
Act shall not be included in the computation under this
subdivision except a spouse who could qualify for an annuity
under section 2(c) of this Act if the individual from whom the
spouse's annuity under this Act would derive had attained age
60 or 62, as the case may be, and such individual's children
who meet the definition as such contained in section 216(e) of
the Social Security Act; (ii) after an annuity has been
certified for payment and this subdivision was inapplicable
after allowing for any waiting period under section 223(c)(2)
of the Social Security Act, and after having considered the
inclusion of all persons who were then eligible for inclusion
in the computation under this subdivision, or was then
applicable but later became inapplicable, any recertification
in such annuity under this subdivision shall not take into
account persons not entitled to an annuity under section 2 of
this Act except a spouse who could qualify for an annuity under
section 2(c) of this Act when she attains age 60 or 62, as the
case may be, if the individual from whom the spouse's annuity
would derive had attained age 60 or 62, as the case may be, and
who was married to such individual at the time he applied for
his annuity; and (iii) in computing the amount to be paid under
this subdivision the only benefits under title II of the Social
Security Act which shall be considered shall be those to which
the persons included in the computation are entitled.
* * * * * * *
computation of spouse and survivor annuities
Sec. 4. (a)(1) * * *
(2) For purposes of this subsection, [if an individual is
entitled to an annuity under paragraph (ii) of section 2(a)(1)
of this Act which did not begin to accrue before such
individual attained age 62, the spouse of such individual
entitled to an annuity under clause (B) of paragraph (ii) of
section 2(c)(1) of this Act] a spouse entitled to an annuity
under section 2(c)(1)(ii)(B) of this Act shall be deemed to
have attained retirement age (as defined in section 216(l) of
the Social Security Act.
[(3) In the case of an individual entitled to an annuity
under section 2(a)(1)(ii) of this Act which began to accrue
before such individual attained age 62, the annuity of the
spouse of such individual under section 2(c) of this Act shall,
in lieu of an annuity amount provided under subdivision (1), be
in an amount equal to--
[(i) for each month prior to the first month
throughout which both the individual and the spouse are
age 62, 50 percentum of that portion of the
individual's annuity as is, or was prior to such
individual's attaining age 62, computed under section
3(a)(3)(i) of this Act, reduced to the same extent such
amount would be reduced under section 202(b)(4) of the
Social Security Act (in the case of a wife) or under
section 202(c)(2) of the Social Security Act (in the
case of a husband) as if such amount were a wife's
insurance benefit or a husband's insurance benefit,
respectively, under such Act; and
[(ii) for months beginning with the first month
throughout which both the individual and the spouse are
age 62, the amount (after any reduction on account of
age are based on the spouse's age at the time the
amount under this paragraph first becomes payable but
before any deductions on account of work) of the wife's
insurance benefit or the husband's insurance benefit to
which such spouse would have been entitled under the
Social Security Act if the individual's service as an
employee after December 31, 1936, had been included in
the term ``employment'' as defined in that Act.
[(4) In the case of an individual entitled to an annuity
under paragraph (iv) or (v) of section 2(a)(1) of this Act, the
annuity of the spouse of such individual entitled to an annuity
under section 2(c)(1)(ii)(B) of this Act shall, in lieu of an
annuity amount provided under subdivision (1), be in an amount
equal to the amount (after any reduction on account of age but
before any deductions on account of work) of the wife's
insurance benefit or the husband's insurance benefit to which
such spouse would have been entitled under the Social Security
Act if the individual's service as an employee after December
31, 1936, had been included in the term ``employment'' as
defined in that Act. For purposes of this subdivision, spouses
who have not attained age 62 shall be deemed to have attained
age 62.]
(3) If a spouse entitled to an annuity under section
2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), or section 2(c)(2) of
this Act or a divorced spouse entitled to an annuity under
section 2(c)(4) of this Act on the basis of the employment
record of an employee who will have completed less than 10
years of service is entitled to a benefit under section 202(a),
section 202(b), or section 202(c) of the Social Security Act
which began to accrue before the annuity under section
2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), section 2(c)(2), or
section 2(c)(4) of this Act, the annuity amount provided under
this subsection shall be computed as though the annuity under
this Act began to accrue on the later of (A) the date on which
the benefit under section 202(a), section 202(b), or section
202(c) of the Social Security Act began or (B) the first date
on which the annuitant met the conditions for entitlement to an
age reduced annuity under this Act other than the conditions
set forth in sections 2(e)(1) and 2(e)(2) of this Act and the
requirement that an application be filed.
* * * * * * *
[(c) If (A) the total amount of the annuity of a spouse of an
individual as computed under the preceding subsections of this
section as of the date on which the annuity of such individual
under section 2(a)(1) of this Act began to accrue (before any
reduction due to such spouse's entitlement to a monthly
insurance benefit under the Social Security Act) plus (B) the
total amount of the annuity and supplemental annuity of the
individual (before any reduction due to such individual's
entitlement to a monthly insurance benefit under the Social
Security Act) subject to the provisions of section 3(f)(1) of
this Act would, before any reductions in the amounts specified
in clauses (A) and (B) on account of age and disregarding any
increases in such amounts which become effective after the date
on which the individual's annuity under section 2(a)(1) of this
Act began to accrue, exceed the amount determined under clauses
(A) and (B) of section 3(f)(1) of this Act, the portion of the
annuity of such spouse determined under subsection (b) of this
section as of the date on which the individual's annuity under
section 2(a)(1) began to accrue shall be reduced until the sum
of the amounts specified in clauses (A) and (B) of the
subsection equals the amount determined under clauses (A) and
(B) of section 3(f)(1) or until such amount under subsection
(b) is reduced to zero, whichever occurs first. If, after such
amount under subsection (b) is reduced to zero, the sum of the
remaining amounts specified in clauses (A) and (B) of this
subsection still exceeds the amount determined under clauses
(A) and (B) of section 3(f)(1), the supplemental annuity of the
individual first, and then, if necessary, the annuity amount of
the individual computed under subsections (b), (c), and (d) of
section 3 as of the date on which the individual's annuity
under section 2(a)(1) began to accrue, shall be reduced until
the amounts specified in clauses (A) and (B) of this subsection
equals the amounts determined under clauses (A) and (B) of
section 3(f)(1) or until such supplemental annuity and such
annuity amount are reduced to zero, whichever occurs first.
Notwithstanding the preceding provisions of this subsection,
the provisions of this subsection shall not operate to reduce
the total of the amounts specified in clauses (A) and (B) of
this subsection below $1,200.]
* * * * * * *
(g)(1) * * *
* * * * * * *
(10)(i) If for any month the unreduced annuity provided under
this section for a widow or widower is less than the widow's or
widower's initial minimum amount computed pursuant to paragraph
(ii) of this subdivision, the unreduced annuity shall be
increased to that initial minimum amount. For the purposes of
this subdivision, the unreduced annuity is the annuity without
regard to any deduction on account of work, without regard to
any reduction for entitlement to an annuity under section
2(a)(1) of this Act, without regard to any reduction for
entitlement to a benefit under title II of the Social Security
Act, and without regard to any reduction for entitlement to a
public service pension pursuant to section 202(e)(7),
202(f)(2), or 202(g)(4) of the Social Security Act.
(ii) For the purposes of this subdivision, the widow or
widower's initial minimum amount is the amount of the unreduced
annuity computed at the time an annuity is awarded to that
widow or widower, except that--
(A) in subsection (g)(1)(i) ``100 percentum'' shall
be substituted for ``50 percentum''; and
(B) in subsection (g)(2)(ii) ``130 percentum'' shall
be substituted for ``80 percentum'' both places it
appears.
(iii) If a widow or widower who was previously entitled to a
widow's or widower's annuity under section 2(d)(1)(ii) of this
Act becomes entitled to a widow's or widower's annuity under
section 2(d)(1)(i) of this Act, a new initial minimum amount
shall be computed at the time of award of the widow's or
widower's annuity under section 2(d)(1)(i) of this Act.
* * * * * * *
annuity beginning and ending dates
Sec. 5. (a) * * *
* * * * * * *
(b) An application for any payment under this Act shall be
made and filed in such manner and form as the Board may
prescribe. [An application filed with the Board for an annuity
under this Act shall, unless the applicant specified otherwise,
be deemed to be an application for any benefit to which such
applicant may be entitled under this Act or title II of the
Social Security Act.] An application filed with the Board for
an employee annuity, spouse annuity, or divorced spouse annuity
on the basis of the employment record of an employee who will
have completed less than ten years of service shall be deemed
to be an application for any benefit to which such applicant
may be entitled under this Act or section 202(a), section
202(b), or section 202(c) of the Social Security Act. An
application filed with the Board for an annuity on the basis of
the employment record of an employee who will have completed
ten years of service shall, unless the applicant specified
otherwise, be deemed to be an application for any benefit to
which such applicant may be entitled under this Act or title II
of the Social Security Act. An individual who was entitled to
an annuity under paragraph (iv) or (v) of section 2(a)(1) of
this Act for the month preceding the month in which he attained
retirement age (as defined in section 216(l) of the Social
Security Act), shall be deemed to have filed an application for
an annuity under paragraph (i) of section 2(a)(1) on the date
on which he attained retirement age (as defined in section
216(l) of the Social Security Act), and a widow or widower who
was entitled to an annuity under section 2(d)(1) of this Act on
the basis of disability for the month preceding the month in
which she or he attained age 60, shall be deemed to have filed
an application for an annuity under such section 2(d)(1) on the
basis of age on the date on which she or he attained age 60.
* * * * * * *
lump-sum payments
Sec. 6. (a) * * *
(b)(1) * * *
(2) Upon the death of an individual who will not have
completed ten years of service prior to January 1, 1975, but
who (i) will have completed ten years of service (or five or
more years of service, all of which accrues after December 31,
1995) at the time of his death (ii) will have had a current
connection with the railroad industry at the time of his death,
and (iii) will have died leaving no widow surviving divorced
wife, widower, child, or parent who would on proper application
therefore be entitled to receive an annuity under section 2(d)
of this Act for the month in which such death occurred, a lump-
sum death payment shall be made in accordance with the
provisions of section 202(i) of the Social Security Act in an
amount equal to the amount which would have been payable under
such section 202(i) if such individual's service as an employee
after December 31, 1936, were included in the term
``employment'' as defined in that Act. If a lump sum would be
payable to a widow or widower under this subdivision except for
the fact that a survivor will have been entitled to receive an
annuity for the month in which the individual will have died,
but within one year after the individual's death there will not
have accrued to survivors of the individual, by reason of his
death, annuities which, after all deductions pursuant to
sections 2(g) and 2(h) of this Act, are equal to such lump sum,
a payment equal to the amount by which such lump sum exceeds
such annuities so accrued after such deductions shall then
nevertheless be made under this subdivision to the widow or
widower to whom a lump sum would have been payable under this
subdivision except for the fact that a monthly benefit under
section 2(d) of this Act was payable for the month in which the
individual dies, if such widow or widower will not have died
before receiving payment of such lump sum.
* * * * * * *
(e)(1) Every individual who will have completed ten years of
service (or five or more years of service, all of which accrues
after December 31, 1995) at the time of his retirement or
death, who will have received compensation in the nature of
separation of severance pay on or after January 1, 1985, and
who would have been credited with additional months of service
pursuant to section 3(i)(4) of this Act except for the fact
that such individual was not in an employment relation to one
or more employers nor an employee representative in such
months, shall, at the time his annuity under section 2(a)(1) of
this Act begins to accrue, be entitled to a lump sum in the
amount provided under subdivision (2) of this subsection. If
the full amount of a lump sum under this subsection cannot be
determined at the time an individual's annuity under sectin
2(a)(1) begins to accure, such lump sum shall be payable at
such time thereafter as such amount can be determined. If an
individual otherwise eligible for a lump sum under this section
dies before he becomes entitled to an annuity under section
2(a)(1), or before he receives payment of such lump sum, such
lump sum shall be payable to the person, if any, who is
determined by the Board to be such individual's widow or
widower and who will not have died before receiving payment of
such lump sum. If there be no such widow or widower, such lump
sum shall be payable to the children, grandchildren, parents,
brothers and sisters, or the estate of the deceased individual
in the same manner as if such lump sum were a lump sum payable
under subsection (c)(1) of this section.
* * * * * * *
powers and duties of the board
Sec. 7. (a) * * *
(b)(1) * * *
(2) In the case of--
(A) an individual who will have completed ten years
of service (or five or more years of service, all of
which accrues after December 31, 1995) creditable under
this Act,
* * * * * * *
[(4) The Board shall from time to time certify to the
Secretary of the Treasury the name and address of each
individual entitled to receive a payment, the amount of such
payment, and the time at which it should be made, and the
Secretary of the Treasury through the Division of Disbursements
of the Treasury Department, and prior to audit by the General
Accounting Office, shall make payment in accordance with the
certification by the Board.]
(4)(A) The Railroad Retirement Board, after consultation with
the Board of Trustees of the Railroad Retirement Investment
Trust and the Secretary of the Treasury, shall enter into an
arrangement with a nongovernmental financial institution to
serve as disbursing agent for benefits payable under this Act
who shall disburse consolidated benefits under this Act to each
recipient. Pending the taking effect of that arrangement,
benefits shall be paid as under the law in effect prior to the
enactment of the Railroad Retirement and Survivors' Improvement
Act of 2001.
(B) The Board shall from time to time certify--
(i) to the Secretary of the Treasury the amounts
required to be transferred from the Social Security
Equivalent Benefit Account and the Dual Benefits
Payments Account to the disbursing agent to make
payments of benefits and the Secretary of the Treasury
shall transfer those amounts;
(ii) to the Board of Trustees of the Railroad
Retirement Investment Trust the amounts required to be
transferred from the Railroad Retirement Investment
Trust to the disbursing agent to make payments of
benefits and the Board of Trustees shall transfer those
amounts; and
(iii) to the disbursing agent the name and address of
each individual entitled to receive a payment, the
amount of such payment, and the time at which the
payment should be made.
* * * * * * *
(c)(1) Benefit payments determined by the Board to be payable
under this Act shall be made [from the Railroad Retirement
Account] by the disbursing agent under subsection (b)(4) from
money transferred to it from the Railroad Retirement Investment
Trust or the Social Security Equivalent Benefit Account, as the
case may be, except that [payments of supplemental annuities
under section 2(b) of this Act shall be made from the Railroad
Retirement Supplemental Account, and] payments of annuity
amounts made under sections 3(h), 4(e), and 4(h) of this Act
and under sections 204(a)(3), 204(a)(4), 206(3), and 207(3) of
Public Law 93-445 shall be made by the disbursing agent under
subsection (b)(4) from money transferred to it from the Dual
Benefits Payments Account. In any fiscal year, the total
amounts paid under such sections shall not exceed the total
sums appropriated to the Dual Benefits Payments Account for
that fiscal year. The Board shall prescribe regulations for
allocation of annuity amounts which would without regard to
such regulations be payable under sections 3(h), 4(e), and 4(h)
of this Act and sections 204(a)(3), 204(a)(4), 206(3), and
207(3) of Public Law 93-445 so that the sums appropriated to
the Dual Benefits Payments Account for a fiscal year so far as
practicable, are expended in equal monthly installments
throughout such fiscal year, and are distributed so that
recipients are paid annuity amounts which bear the same ratio
to the annuity amounts such recipients would have received but
for such regulations as the ratio of the total sums
appropriated to pay such annuity amounts bear to the total sums
necessary to pay such annuity amounts without regard to such
regulations. Notwithstanding any other provision of law, the
entitlement of an individual to an annuity amount under section
3(h), 4(e), or 4(h) of this Act or section 204(a)(3),
204(a)(4), 206(3), or 207(3) of Public Law 93-445 for any month
in which the amount payable to such individual is allocated
under the regulations prescribed by the Board under this
subsection shall not exceed the amount so allocated for that
month to such individual.
* * * * * * *
(d)(1) * * *
(2) Except as otherwise provided in this subsection, every
person who--
(i) has attained age 65 and (A) is entitled to an
annuity under this Act or (B) would be entitled to such
an annuity had he ceased compensated service and, in
the case of a spouse or divorced wife, had such
spouse's husband or wife ceased compensated service or
(C) bears a relationship to an employee which, by
reason of section [3(f)(3)] 3(f)(2) of this Act, has
been, or would be, taken into account in calculating
the amount of the annuity of such employee; or
(ii) has not attained age 65 and (A) has been
entitled to an annuity under section 2 of this Act, or
under the Railroad Retirement Act of 1937 and section 2
of this Act, or could have been includable in the
computation of an annuity under section [3(f)(3)]
3(f)(2) of this Act, for not less than 24 months and
(B) could have been entitled for 24 calendar months,
and could currently be entitled, to monthly insurance
benefits under section 223 of the Social Security Act
or under section 202 of that Act on the basis of
disability if service as an employee after December 31,
1936, had been included in the term ``employment'' as
defined in that Act and if an application for
disability benefits had been filed,
shall be certified to the Secretary of Health, Education, and
Welfare as a qualified railroad retirement beneficiary under
section 226 of the Social Security Act.
* * * * * * *
railroad retirement account
Sec. 15. (a) The Railroad Retirement Account established by
section 15(a) of the Railroad Retirement Act of 1937 shall
continue to be maintained in the Treasury of the United States.
There is hereby appropriated to such Account for each fiscal
year, beginning with the fiscal year ending June 30, 1975, to
provide for the payment of benefits to be made from such
Account in accordance with the provisions of section 7(c)(1) of
this Act, and to provide for expenses necessary for the Board
in the administration of all provisions of this Act, an amount
equal to amounts covered into the Treasury (minus refunds)
during each fiscal year under the Railroad Retirement Tax Act[,
except those portions of the amounts covered into the Treasury
under sections 3211(b), 3221(c), and 3221(d) of such Tax Act as
are necessary to provide sufficient funds to meet the
obligation to pay supplemental annuities at the level provided
under section 3(e) of this Act and, with respect to those
entitled to supplemental annuities under section 205(a) of
title II of this Act, at the level provided under section
205(a). The Board is directed to determine what portion of the
taxes collected under sections 3211(b), 3221(c), and 3221(d) of
the Railroad Retirement Tax Act is to be credited to the
Railroad Retirement Account pursuant to the preceding
provisions of this subsection and what portion of such taxes is
to be credited to the Railroad Retirement Supplemental Account
pursuant to the provisions of subsection (c) of this section.
The Board shall make such a determination with respect to each
calendar quarter commencing with the quarter beginning January
1, 1975, shall make each such determination not later than
fifteen days before each calendar quarter, and shall, as soon
as practicable after each such determination, advise the
Secretary of the Treasury of the determination made. The
Secretary of the Treasury shall credit the amounts covered into
the Treasury under sections 3211(b), 3221(c), and 3221(d) of
the Railroad Retirement Tax Act to the Railroad Retirement
Account and the Railroad Retirement Supplemental Account in
such proportions as is determined by the Board pursuant to the
provisions of this subsection].
* * * * * * *
[(c) The Railroad Retirement Supplemental Account established
by section 15(b) of the Railroad Retirement Act of 1937 shall
continue to be maintained in the Treasury of the United States.
There is hereby appropriated to such account for each fiscal
year, beginning with the fiscal year ending June 30, 1975, out
of any moneys in the Treasury not otherwise appropriated, to
provide for the payment of supplemental annuities under section
2(b) of this Act, and to provide for the expenses necessary for
the Board in the administration of the payment of such
supplemental annuities, an amount equal to such portions of the
amounts covered into the Treasury (minus refunds) during each
fiscal year under sections 3211(b), 3221(c), and 3221(d) of the
Railroad Retirement Tax Act as are not appropriated to the
Railroad Retirement Account pursuant to the provisions of
subsection (a) of this section. Whenever the Board finds at any
time that the balance in the Railroad Retirement Supplemental
Account will be insufficient to pay the supplemental annuities
which it estimates are due, or will become due, under section
2(b) of this Act, it shall request the Secretary of the
Treasury to transfer from the Railroad Retirement Account to
the credit of the Railroad Retirement Supplemental Account such
moneys as the Board estimates would be necessary for the
payment of such supplemental annuities, and the Secretary shall
make such transfer. Whenever the Board finds that the balance
in the Railroad Retirement Supplemental Account, without regard
to the amounts transferred pursuant to the next preceding
sentence, is sufficient to pay such supplemental annuities, it
shall request the Secretary of the Treasury to retransfer from
the Railroad Retirement Supplemental Account to the credit of
the Railroad Retirement Account such moneys as in its judgment
are not needed for the payment of such supplemental annuities,
plus interest at an annual rate equal to the average rate of
interest borne by all special obligations held by the Railroad
Retirement Account on the last day of the preceding fiscal
year, rounded to the nearest multiple of one-eight of 1
percentum, and the Secretary shall make such retransfer.]
(d)(1) There is hereby created an account in the Treasury of
the United States to be known as the Dual Benefits Payments
Account. There is hereby authorized to be appropriated to such
account for each fiscal year beginning with the fiscal year
ending September 30, 1982, such sums as are necessary to pay
during such fiscal year the amounts of annuities estimated by
the Board to be paid under sections 3(h), 4(e), and 4(h) of
this Act and under sections 204(a)(3), 204(a)(4), 206(3), and
207(3) of Public Law 93-445. Not more than 30 days prior to
each fiscal year beginning with the fiscal year ending
September 30, 1982, the Board may request the Secretary of the
Treasury to transfer from the Railroad Retirement Account to
the credit of the Dual Benefits Payments Account any amount not
exceeding the amount that the Board estimates will be necessary
to pay on the first day of the next succeeding month the
annuity amounts under sections 3(h), 4(e), and 4(h) of this Act
and under sections 204(a)(3), 204(a)(4), 206(3), and 207(3) of
Public Law 93-445, taking into account any reduction in such
annuity amounts as determined under section 7(c)(1) of this
Act, and the Secretary of the Treasury shall make such
transfer, but at no time shall the total amount of money
outstanding to the Dual Benefits Payments Account from the
Railroad Retirement Account exceed the amount necessary to pay
the annuity amounts under sections 3(h), 4(e), and 4(h) of this
Act and sections 204(a)(3), 204(a)(4), 206(3), and 207(3) of
Public Law 93-445 for one month. Not more than 10 days after
the funds appropriated to the Dual Benefits Payments Account
for each such fiscal year are received into such Account, the
Board shall request the Secretary of the Treasury to retransfer
from the Dual Benefits Payments Account to the credit of the
Railroad Retirement Account an amount equal to the amount
transferred to the Dual Benefits Payments Account prior to or
during such fiscal year under the preceding sentence, together
with such additional amount determined by the Board to be equal
to the loss of interest to the Railroad Retirement Account
resulting from such transfer, and the Secretary of the Treasury
shall make such retransfer. The Secretary of the Treasury shall
from time to time transfer from the Dual Benefits Payments
Account to the disbursing agent under section 7(b)(4) amounts
necessary to pay benefits payable from that Account.
* * * * * * *
(e) At the request and direction of the Board, it shall be
the duty of the Secretary of the Treasury (hereinafter referred
to as the ``Secretary'') to invest such portion of the amounts
credited to the Railroad Retirement Account[, the Dual Benefits
Payments Account and the Railroad Retirement Supplemental
Account as, in the judgment of the Board, is not immediately
required for the payment of annuities, supplemental annuities,
and death benefits. Such investments may be made only] and the
Dual Benefits Payments Account as are not transferred to the
Railroad Retirement Investment Trust as the Board may determine
in interest-bearing obligations of the United States or in
obligations guaranteed as to both principal and interest by the
United States. For such purpose such obligations may be
acquired (A) on original issue at the issue price; or (B) by
purchase of outstanding obligations at the market price. The
purposes for which obligations of the United States may be
issued under [the Second Liberty Bond Act, as amended] chapter
31 of title 31, are hereby extended to authorize the issuance
at par of special obligations exclusively to the accounts. Such
obligations issued for purchase by the accounts shall have
maturities fixed with due regard for the needs of the accounts,
and shall bear interest at a rate equal to the average market
yield, computed as of the end of the calendar month next
preceding the date of such issue, borne by all marketable
interest-bearing notes of the United States then forming a part
of the public debt that are not due or callable until after the
expiration of three years from the end of such calendar month,
except that where such rate is not a multiple of one-eighth of
1 percentum, the rate of interest on such obligations shall be
the multiple of one-eighth of 1 percentum nearest such rate:
Provided, That the rate of interest on such obligations shall
in no case be less than 3 percentum per annum. At the request
of the Board the Secretary shall purchase other interest-
bearing obligations of the United States, or obligations
guaranteed as to both principal and interest by the United
States, or other obligations which are lawful investments for
trust funds of the United States, on original issue or at the
market price: Provided, That the interest yield of such
obligations shall not be less than the interest rate determined
in accordance with the preceding sentence. At the request of
the Board, the Secretary shall sell at the market price such
obligations in the accounts (other than special obligations
issued exclusively to the accounts) as the Board designates.
The Board shall from time to time request the Secretary to
redeem such special obligations issued exclusively to the
accounts as the Board designates and upon such request the
Secretary shall redeem such obligations at par plus accrued
interest. All requests of the Board to the Secretary, provided
for in this subsection, shall be mandatory upon the Secretary.
It shall be the duty of the Board to determine at all times
what proportion of the accounts shall be invested in other than
special obligations issued to the accounts and further to
determine which of such obligations available to the accounts
consistent with [the foregoing requirements] the requirements
of this subsection will provide the greatest rate of return on
the funds invested.
* * * * * * *
(j) Railroad Retirement Investment Trust.--
(1) Establishment.--The Railroad Retirement
Investment Trust (hereinafter in this subsection
referred to as the ``Trust'') is hereby established as
a trust domiciled in the District of Columbia and
shall, to the extent not inconsistent with this Act, be
subject to the laws of the District of Columbia
applicable to such trusts. The Trust shall manage and
invest its assets in the manner set forth in this
subsection.
(2) Not a federal agency or instrumentality.--The
Trust is not a department, agency, or instrumentality
of the Government of the United States and shall not be
subject to title 31, United States Code.
(3) Board of trustees.--
(A) Generally.--The Trust shall have a Board
of Trustees, consisting of 7 members, each
appointed by a unanimous vote of the Railroad
Retirement Board. The Railroad Retirement Board
may remove any member so appointed by unanimous
vote. Of the members, 3 shall represent the
interests of labor, 3 shall represent the
interests of management, and 1 shall represent
the interests of the general public. The
members of the Board of Trustees shall not be
considered officers or employees of the
Government of the United States.
(B) Qualifications.--Members of the Board of
Trustees shall be appointed only from among
persons who have experience and expertise in
the management of financial investments and
pension plans. No member of the Railroad
Retirement Board shall be eligible to be a
member of the Board of Trustees.
(C) Terms.--Except as provided in this
subparagraph, each member shall be appointed
for a 3-year term. The initial members
appointed under this paragraph shall be divided
into equal groups so nearly as may be, of which
one group will be appointed for a 1-year term,
one for a 2-year term, and one for a 3-year
term. A vacancy in the Board of Trustees shall
not affect the powers of the Board of Trustees
and shall be filled in the same manner as the
selection of the member whose departure caused
the vacancy. Upon the expiration of a term of a
member of the Board of Trustees, that member
shall continue to serve until a successor is
appointed.
(4) Powers of the board of trustees.--The Board of
Trustees shall--
(A) retain independent advisers to assist it
in the formulation and adoption of its
investment guidelines;
(B) retain independent investment managers to
invest the assets of the Trust in a manner
consistent with such investment guidelines;
(C) invest assets in the Trust, pursuant to
the policies adopted in subparagraph (A);
(D) pay administrative expenses of the Trust
from the assets in the Trust; and
(E) transfer money to the disbursing agent or
as otherwise provided in section 7(b)(4), to
pay benefits payable under this Act from the
assets of the Trust.
(5) Reporting requirements and fiduciary standards.--
The following reporting requirements and fiduciary
standards shall apply with respect to the Trust:
(A) Duties of the board of trustees.--The
Trust and each member of the Board of Trustees
shall discharge their duties with respect to
the assets of the Trust solely in the interest
of the Railroad Retirement Board and through
it, the participants and beneficiaries of the
programs funded under this Act--
(i) for the exclusive purpose of--
(I) providing benefits to
participants and their
beneficiaries; and
(II) defraying reasonable
expenses of administering the
functions of the Trust;
(ii) with the care, skill, prudence,
and diligence under the circumstances
then prevailing that a prudent person
acting in a like capacity and familiar
with such matters would use in the
conduct of an enterprise of a like
character and with like aims;
(iii) by diversifying investments so
as to minimize the risk of large
losses, unless under the circumstances
it is clearly prudent not to do so; and
(iv) in accordance with Trust
governing documents and instruments
insofar as such documents and
instruments are consistent with this
Act.
(B) Prohibitions with respect to members of
the board of trustees.--No member of the Board
of Trustees shall--
(i) deal with the assets of the Trust
in the trustee's own interest or for
the trustee's own account;
(ii) in an individual or in any other
capacity act in any transaction
involving the assets of the Trust on
behalf of a party (or represent a
party) whose interests are adverse to
the interests of the Trust, the
Railroad Retirement Board, or the
interests of participants or
beneficiaries; or
(iii) receive any consideration for
the trustee's own personal account from
any party dealing with the assets of
the Trust.
(C) Exculpatory provisions and insurance.--
Any provision in an agreement or instrument
that purports to relieve a trustee from
responsibility or liability for any
responsibility, obligation, or duty under this
Act shall be void: Provided, however, That
nothing shall preclude--
(i) the Trust from purchasing
insurance for its trustees or for
itself to cover liability or losses
occurring by reason of the act or
omission of a trustee, if such
insurance permits recourse by the
insurer against the trustee in the case
of a breach of a fiduciary obligation
by such trustee;
(ii) a trustee from purchasing
insurance to cover liability under this
section from and for his own account;
or
(iii) an employer or an employee
organization from purchasing insurance
to cover potential liability of one or
more trustees with respect to their
fiduciary responsibilities,
obligations, and duties under this
section.
(D) Bonding.--Every trustee and every person
who handles funds or other property of the
Trust (hereafter in this subsection referred to
as ``Trust official'') shall be bonded. Such
bond shall provide protection to the Trust
against loss by reason of acts of fraud or
dishonesty on the part of any Trust official,
directly or through the connivance of others,
and shall be in accordance with the following:
(i) The amount of such bond shall be
fixed at the beginning of each fiscal
year of the Trust by the Railroad
Retirement Board. Such amount shall not
be less than 10 percent of the amount
of the funds handled. In no case shall
such bond be less than $1,000 nor more
than $500,000, except that the Railroad
Retirement Board, after consideration
of the record, may prescribe an amount
in excess of $500,000, subject to the
10 percentum limitation of the
preceding sentence.
(ii) It shall be unlawful for any
Trust official to receive, handle,
disburse, or otherwise exercise custody
or control of any of the funds or other
property of the Trust without being
bonded as required by this subsection
and it shall be unlawful for any Trust
official, or any other person having
authority to direct the performance of
such functions, to permit such
functions, or any of them, to be
performed by any Trust official, with
respect to whom the requirements of
this subsection have not been met.
(iii) It shall be unlawful for any
person to procure any bond required by
this subsection from any surety or
other company or through any agent or
broker in whose business operations
such person has any control or
significant financial interest, direct
or indirect.
(E) Audit and report.--
(i) The Trust shall annually engage
an independent qualified public
accountant to audit the financial
statements of the Trust.
(ii) The Trust shall submit an annual
management report to the Congress not
later than 180 days after the end of
the Trust's fiscal year. A management
report under this subsection shall
include--
(I) a statement of financial
position;
(II) a statement of
operations;
(III) a statement of cash
flows;
(IV) a statement on internal
accounting and administrative
control systems;
(V) the report resulting from
an audit of the financial
statements of the Trust
conducted under clause (i); and
(VI) any other comments and
information necessary to inform
the Congress about the
operations and financial
condition of the Trust.
(iii) The Trust shall provide the
President, the Railroad Retirement
Board, and the Director of the Office
of Management and Budget a copy of the
management report when it is submitted
to Congress.
(F) Enforcement.--The Railroad Retirement
Board may bring a civil action--
(i) to enjoin any act or practice by
the Trust, its Board of Trustees, or
its employees or agents that violates
any provision of this Act; or
(ii) to obtain other appropriate
relief to redress such violations, or
to enforce any provisions of this Act.
(6) Application of fiduciary standards to railroad
retirement board.--
(A) In general.--The provisions of paragraph
(5)(A) shall apply to the members of the
Railroad Retirement Board in the discharge of
their duty to appoint the members of the Board
of Trustees under paragraph (3)(A) in the same
manner as such provisions apply to the members
of the Board of Trustees.
(B) Enforcement.--For purposes of this
paragraph, the provisions of paragraph (5)(F)
shall apply by substituting ``the Secretary of
Labor'' for ``the Railroad Retirement Board''.
(7) Rules and administrative powers.--The Board of
Trustees shall have the authority to make rules to
govern its operations, employ professional staff, and
contract with outside advisers, including the Railroad
Retirement Board, to provide legal, accounting,
investment advisory, or other services necessary for
the proper administration of this subsection. In the
case of contracts with investment advisory services,
compensation for such services may be on a fixed
contract fee basis or on such other terms and
conditions as are customary for such services.
(8) Quorum.--Five members of the Board of Trustees
constitute a quorum to do business. Investment
guidelines must be adopted by a unanimous vote of the
entire Board of Trustees. All other decisions of the
Board of Trustees shall be decided by a majority vote
of the quorum present. All decisions of the Board of
Trustees shall be entered upon the records of the Board
of Trustees.
(9) Funding.--The expenses of the Trust and the Board
of Trustees incurred under this subsection shall be
paid from the Trust.
(k) Transfers to the Trust.--The Board shall, upon
establishment of the Railroad Retirement Investment Trust and
from time to time thereafter, direct the Secretary of the
Treasury to transfer, in such manner as will maximize the
investment returns to the Railroad Retirement system, that
portion of the Railroad Retirement Account that is not needed
to pay current administrative expenses of the Board to the
Railroad Retirement Investment Trust. The Secretary shall make
that transfer.
(l) Railroad Retirement Investment Trust.--The Railroad
Retirement Investment Trust shall from time to time transfer to
the disbursing agent described in section 7(b)(4) or as
otherwise directed by the Railroad Retirement Board pursuant to
section 7(b)(4), such amounts as may be necessary to pay
benefits under this Act (other than benefits paid from the
Social Security Equivalent Benefit Account or the Dual Benefit
Payments Account).
social security equivalent benefit account
Sec. 15A. (a) * * *
* * * * * * *
(c)(1) Except as otherwise provided in this section,
amounts in the Social Security Equivalent Benefit Account shall
be available only for purposes of paying social security
equivalent benefits under this Act and to provide for the
administrative expenses of the Board allocable to social
security equivalent benefits. The Secretary shall from time to
time transfer to the disbursing agent under section 7(b)(4)
amounts necessary to pay those benefits.'
* * * * * * *
(d)(1) Whenever the Board finds that the balance in the
Social Security Equivalent Benefit Account will be insufficient
to pay social security equivalent benefits which it estimates
are due in any month, it shall request the Secretary of the
Treasury to transfer from the Railroad Retirement Account to
the credit of the Social Security Equivalent Benefit Account
such moneys as the Board estimates will be necessary for the
payment of such benefits, and the Secretary shall make such
transfer. [Whenever later in such month there is a transfer to
the Social Security Equivalent Benefit Account under paragraph
(2) or (4) of section 7(c) of this Act, the amount so
transferred shall be immediately retransferred to the Railroad
Retirement Account. The amount retransferred under the
preceding sentence shall not exceed the amount of any
outstanding transfers under this paragraph from the Railroad
Retirement Account plus such additional amounts determined by
the Board to be equal to the loss of interest to the Railroad
Retirement Account resulting from such outstanding transfers.
[(2) Whenever the Board determines that--
[(A) amounts in the Railroad Retirement Account will
not be sufficient to pay the annuities which it
estimates are due, or will become due, from such
Account, and
[(B) the transfer under this paragraph will not
jeopardize the present or future payment of social
security equivalent benefits,
the Board shall request the Secretary of the Treasury to
transfer from the Social Security Equivalent Benefit Account to
the Railroad Retirement Account such moneys as the Board
estimates will be necessary for the payment of such annuities,
and the Secretary shall make such transfer. No transfer under
this paragraph shall be required to be repaid.]
(2) Upon establishment of the Railroad Retirement Investment
Trust and from time to time thereafter, the Board shall direct
the Secretary of the Treasury to transfer, in such manner as
will maximize the investment returns to the Railroad Retirement
system, the balance of the Social Security Equivalent Benefit
Account not needed to pay current benefits and administrative
expenses required to be paid from that Account to the Railroad
Retirement Investment Trust, and the Secretary shall make that
transfer. Any balance transferred under this paragraph shall be
used by the Railroad Retirement Investment Trust only to pay
benefits under this Act or to purchase obligations of the
United States that are backed by the full faith and credit of
the United States pursuant to chapter 31 of title 31, United
States Code. The proceeds of sales of, and the interest income
from, such obligations shall be used by the Trust only to pay
benefits under this Act.
* * * * * * *
crediting service under the social security act
Sec. 18. (1) * * *
(2) For the purpose of determining (i) monthly insurance
benefits under the Social Security Act to an employee who will
have completed less than ten years of service (or less than
five years of service, all of which accrues after December 31,
1995) and to others deriving from him or her during his or her
life and (ii) monthly insurance benefits and lump-sum death
benefits under such Act with respect to the death of an
employee who (A) will have completed less than ten years of
service (or less than five years of service, all of which
accrues after December 31, 1995) or (B) will have completed ten
or more years of service (or five or more years of service, all
of which accrues after December 31, 1995) but will not have had
a current connection with the railroad industry at the time of
his death, and for the purposes of section 203 and section
216(i) of that Act, section 210(a)(9) of the Social Security
Act and subdivision (1) of this section shall not operate to
exclude from ``employment'' under the Social Security Act
service which would otherwise be included in such
``employment'' but for such sections. For such purpose,
compensation paid in a calendar year shall, in the absence of
evidence to the contrary, be presumed to have been paid in
equal proportions with respect to all months in the year in
which the employee will have been in service as an employee. In
the application of the Social Security Act pursuant to this
subdivision to service as an employee, all service as defined
in section 1(d) of this Act shall be deemed to have been
performed within the United States.
automatic benefit eligibility requirement adjustments
Sec. 19. (a) * * *
* * * * * * *
(c) If section 226 or title XVII of the Social Security Act
is amended at any time after December 31, 1974, to reduce the
conditions of entitlement to, or to expand the nature of, the
benefits payable thereunder, or if health care benefits in
addition to, or in lieu of, the benefits payable under such
section 226 or such title XVIII are provided by any provision
of law which becomes effective at any time after December 31,
1974, such reductions in the conditions of entitlement to
benefits, such expanded benefits, or such additional, or
substituted, health care benefits shall be available to every
employee (as defined in this Act), and those deriving from him,
in the same manner, and to the same, extent, as if his service
as an employee after December 31, 1936, had been included in
the term ``employment'' as defined in the Social Security Act.
The Board shall have the same authority, in accordance with
regulations prescribed by it, to determine the rights of
employees who will have completed ten years of service (or five
or more years of service, all of which accrues after December
31, 1995), and of those deriving from such employees, to
benefits provided by reason of the provisions of this
subsection as the Secretary of Health, Education, and Welfare
has with respect to individuals insured under the Social
Security Act.
(d) Notwithstanding the provisions of subsections (a), (b),
and (c) of this section--
(1) * * *
(2) No annuity shall be payable to a person by reason
of subsection (a) or (b) of this section unless the
individual upon whose compensation and years of service
such annuity would be based will have (A) completed ten
years of service (or five or more years of service, all
of which accrues after December 31, 1995), and (B) in
the case of a survivor, had a current connection with
the railroad industry at the time of his death.
* * * * * * *
benefit preservation
Sec. 22. (a)(1) On or before May 1 of each year beginning
in 1984, the Railroad Retirement Board shall prepare a five-
year projection of anticipated revenues to and payments from
the Railroad Retirement Account to determine the ability of
such Account to pay benefits in each of the next succeeding
five calendar years. On or before May 1 of each year beginning
in 2003, the Railroad Retirement Board shall compute its
projection of the account benefits ratio and the average
account benefits ratio (as defined by section 3241(c) of the
Internal Revenue Code of 1986) for each of the next succeeding
five fiscal years. No later than July 1 of each year, the Board
shall submit a written report to the President, the Speaker of
the House, and the President of the Senate setting forth the
results of [the projection prepared pursuant to the preceding
sentence] the projections prepared pursuant to the preceding
two sentences. If the projection indicates that the funds in
the Railroad Retirement Account will be insufficient to pay the
full amount of the benefits under this Act which are payable
from that Account at any time during the five-year period, the
Board's report shall include--
(A) * * *
* * * * * * *
computation and certification of account benefit ratios
Sec. 23. (a) Initial Computation and Certification.--On or
before November 1, 2003, the Railroad Retirement Board shall--
(1) compute the account benefits ratios for each of
the most recent 10 preceding fiscal years, and
(2) certify the account benefits ratios for each such
fiscal year to the Secretary of the Treasury.
(b) Computations and Certifications After 2003.--On or before
November 1 of each year after 2003, the Railroad Retirement
Board shall--
(1) compute the account benefits ratio for the fiscal
year ending in such year, and
(2) certify the account benefits ratio for such
fiscal year to the Secretary of the Treasury.
(c) Definition.--As used in this section, the term ``account
benefits ratio'' has the meaning given that term in section
3241(c) of the Internal Revenue Code of 1986.
----------
SECTION 205 OF THE SOCIAL SECURITY ACT
evidence, procedure, and certification for payment
Sec. 205. (a) * * *
* * * * * * *
(i) Upon final decision of the Commissioner of Social
Security, or upon final judgment of any court of competent
jurisdiction, that any person is entitled to any payment or
payments under this title, the Commissioner of Social Security
shall certify to the Managing Trustee the name and address of
the person so entitled to receive such payment or payments, the
amount of such payment or payments, and the time at which such
payment or payments should be made, and the Managing Trustee,
through the Fiscal Service of the Department of the Treasury,
and prior to any action thereon by the General Accounting
Office, shall make payment in accordance with the certification
of the Commissioner of Social Security (except that in the case
of (A) an individual who will have completed ten years of
service (or five or more years of service, all of which accrues
after December 31, 1995) creditable under the Railroad
Retirement Act of 1937 or the Railroad Retirement Act of 1974,
(B) the wife or husband of such an individual, (C) any survivor
of such an individual if such survivor is entitled, or could
upon application become entitled, to an annuity under section 2
of the Railroad Retirement Act of 1974, and (D) any other
person entitled to benefits under section 202 of this Act on
the basis of the wages and self-employment income of such an
individual (except a survivor of such an individual where such
individual did not have a current connection with the railroad
industry, as defined in the Railroad Retirement Act of 1974, at
the time of his death), such certification shall be made to the
Railroad Retirement Board which shall provide for such payment
or payments to such person on behalf of the Managing Trustee in
accordance with the provisions of the Railroad Retirement Act
of 1974): Provided, That where a review of the Commissioner's
decision is or may be sought under subsection (g) the
Commissioner of Social Security may withhold certification of
payment pending such review. The Managing Trustee shall not be
held personally liable for any payment or payments made in
accordance with a certification by the Commissioner of Social
Security.
* * * * * * *
----------
INTERNAL REVENUE CODE OF 1986
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
PART IV--CREDITS AGAINST TAX
* * * * * * *
Subpart A--Nonrefundable Personal Credits
* * * * * * *
SEC. 24. CHILD TAX CREDIT.
(a) * * *
* * * * * * *
(d) Additional Credit for Families With 3 or More Children.--
(1) * * *
* * * * * * *
(3) Social security taxes.--For purposes of paragraph
(1)--
(A) In general.--The term ``social security
taxes'' means, with respect to any taxpayer for
any taxable year--
(i) * * *
* * * * * * *
(iii) 50 percent of the taxes imposed
by [section 3211(a)(1)] section 3211(a)
on amounts received by the taxpayer
during the calendar year in which the
taxable year begins.
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
* * * * * * *
SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE
CONTRACTS.
(a) * * *
* * * * * * *
(r) Certain Railroad Retirement Benefits Treated as Received
Under Employer Plans.--
(1) * * *
(2) Tier 2 taxes treated as contributions.--
(A) * * *
* * * * * * *
(B) Tier 2 portion.--For purposes of
subparagraph (A)--
(i) After 1984.--With respect to
compensation paid after 1984, the tier
2 portion shall be the taxes imposed by
sections 3201(b), [3211(a)(2)] 3211(b),
and 3221(b).
* * * * * * *
Subchapter F--Exempt Organizations
* * * * * * *
PART I--GENERAL RULE
* * * * * * *
SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.
(a) * * *
* * * * * * *
(c) List of Exempt Organizations.--The following
organizations are referred to in subsection (a):
(1) * * *
* * * * * * *
(28) The Railroad Retirement Investment Trust
established under section 15(j) of the Railroad
Retirement Act of 1974.
* * * * * * *
Subtitle C--Employment Taxes
* * * * * * *
CHAPTER 22--RAILROAD RETIREMENT TAX ACT
* * * * * * *
Subchapter E. Tier 2 tax rate determination.
* * * * * * *
Subchapter A--Tax on Employees
* * * * * * *
SEC. 3201. RATE OF TAX.
(a) * * *
[(b) Tier 2 Tax.--In addition to other taxes, there is hereby
imposed on the income of each employee a tax equal to 4.90
percent of the compensation received during any calendar year
by such employee for services rendered by such employee.]
(b) Tier 2 Tax.--
(1) In general.--In addition to other taxes, there is
hereby imposed on the income of each employee a tax
equal to the applicable percentage of the compensation
received during any calendar year by such employee for
services rendered by such employee.
(2) Applicable percentage.--For purposes of paragraph
(1), the term ``applicable percentage'' means--
(A) 4.90 percent in the case of compensation
received during 2002 or 2003, and
(B) in the case of compensation received
during any calendar year after 2003, the
percentage determined under section 3241 for
such calendar year.
* * * * * * *
Subchapter B--Tax on Employee Representatives
* * * * * * *
SEC. 3211. RATE OF TAX.
[(a) Imposition of Taxes.--
[(1) Tier 1 tax.--In addition to other taxes, there
is hereby imposed on the income of each employee
representative a tax equal to the applicable percentage
of the compensation received during any calendar year
by such employee representative for services rendered
by such employee representative. For purposes of the
preceding sentence, the term ``applicable percentage''
means the percentage equal to the sum of the rates of
tax in effect under subsections (a) and (b) of section
3101 and subsections (a) and (b) of section 3111 for
the calendar year.
[(2) Tier 2 tax.--In addition to other taxes, there
is hereby imposed on the income of each employee
representative a tax equal to the following percentage
of the compensation received during any calendar year
by such employee representatives for services rendered
by such employee representative:
[In the case of compensation
received during: The rate shall be:
1985.................................................... 13.75
1986 or thereafter...................................... 14.75
[(3) Cross reference.--
[For application of different contribution bases with respect
to the taxes imposed by paragraphs (1) and (2), see section
3231(e)(2).
[(b) In addition to other taxes, there is hereby imposed on
the income of each employee representative a tax at a rate
equal to the rate of excise tax imposed on every employer,
provided for in section 3221(c), for each man-hour for which
compensation is paid to him for services rendered as an
employee representative.]
(a) Tier 1 Tax.--In addition to other taxes, there is hereby
imposed on the income of each employee representative a tax
equal to the applicable percentage of the compensation received
during any calendar year by such employee representative for
services rendered by such employee representative. For purposes
of the preceding sentence, the term ``applicable percentage''
means the percentage equal to the sum of the rates of tax in
effect under subsections (a) and (b) of section 3101 and
subsections (a) and (b) of section 3111 for the calendar year.
(b) Tier 2 Tax.--
(1) In general.--In addition to other taxes, there is
hereby imposed on the income of each employee
representative a tax equal to the applicable percentage
of the compensation received during any calendar year
by such employee representatives for services rendered
by such employee representative.
(2) Applicable percentage.--For purposes of paragraph
(1), the term ``applicable percentage'' means--
(A) 14.75 percent in the case of compensation
received during 2002,
(B) 14.20 percent in the case of compensation
received during 2003, and
(C) in the case of compensation received
during any calendar year after 2003, the
percentage determined under section 3241 for
such calendar year.
(c) Cross Reference.--
For application of different contribution bases with respect
to the taxes imposed by subsections (a) and (b), see section
3231(e)(2).
* * * * * * *
Subchapter C--Tax on Employers
* * * * * * *
SEC. 3221. RATE OF TAX.
(a) * * *
[(b) Tier 2 Tax.--In addition to other taxes, there is hereby
imposed on every employer an excise tax, with respect to having
individuals in his employ, equal to 16.10 percent of the
compensation paid during any calendar year by such employer for
services rendered to such employer.
[(c) In addition to other taxes, there is hereby imposed on
every employer an excise tax, with respect to having
individuals in his employ, for each man-hour for which
compensation is paid by such employer for services rendered to
him during any calendar quarter, at such rate as will make
available sufficient funds to meet the obligation to pay
supplemental annuities at the level provided under section 3(j)
of the Railroad Retirement Act of 1937 as in effect on December
31, 1974 and administrative expenses in connection therewith.
For the purpose of this subsection, the Railroad Retirement
Board is directed to determine what rate is required for each
calendar quarter. The Railroad Retirement Board shall make the
determinations provided for not later than fifteen days before
each calendar quarter. As soon as practicable after each
determination of the rate, as provided in this subsection, the
Railroad Retirement Board shall publish a notice in the Federal
Register, and shall advise all employers, employee
representatives, and the Secretary, of the rate so determined.
With respect to daily, weekly, or monthly rates of compensation
such tax shall apply to the number of hours comprehended in the
rate together with the number of overtime hours for which
compensation in addition to the daily, weekly, or monthly rate
is paid. With respect to compensation paid on a mileage or
piecework basis such tax shall apply to the number of hours
constituting the hourly equivalent of the compensation paid.
Each employer of employees whose supplemental annuities are
reduced pursuant to section 3(j)(2) of the Railroad Retirement
Act of 1937 or section 2(h)(2) of the Railroad Retirement Act
of 1974 shall be allowed as a credit against the tax imposed by
this subsection an amount equivalent in each month to the
aggregate amount of reductions in supplemental annuities
accruing in such month to employees of such employer. If the
credit so allowed to such an employer for any month exceeds the
tax liability of such employer accruing under this subsection
in such month, the excess may be carried forward for credit
against such taxes accruing in subsequent months but the total
credit allowed by this paragraph to an employer shall not
exceed the total of the taxes on such employer imposed by this
subsection. At the end of each calendar quarter the Railroad
Retirement Board shall certify to the Secretary with respect to
each such employer the amount of credit accruing to such
employer under this paragraph during such quarter and shall
notify such employer as to the amount so certified.
[(d) Notwithstanding the provisions of subsection (c) of this
section, the tax imposed by such subsection (c) shall not apply
to an employer with respect to employees who are covered by a
supplemental pension plan which is established pursuant to an
agreement reached through collective bargaining between the
employer and employees. There is hereby imposed on every such
employer an excise tax equal to the amount of the supplemental
annuity paid to each such employee under section 2(b) of the
Railroad Retirement Act of 1974, plus a percentage thereof
determined by the Railroad Retirement Board to be sufficient to
cover the administrative costs attributable to such payments
under section 2(b) of such Act.]
(b) Tier 2 Tax.--
(1) In general.--In addition to other taxes, there is
hereby imposed on every employer an excise tax, with
respect to having individuals in his employ, equal to
the applicable percentage of the compensation paid
during any calendar year by such employer for services
rendered to such employer.
(2) Applicable percentage.--For purposes of paragraph
(1), the term ``applicable percentage'' means--
(A) 15.6 percent in the case of compensation
paid during 2002,
(B) 14.2 percent in the case of compensation
paid during 2003, and
(C) in the case of compensation paid during
any calendar year after 2003, the percentage
determined under section 3241 for such calendar
year.
[(e)] (c) Cross Reference.--
For application of different contribution bases with respect
to the taxes imposed by subsections (a) and (b), see section
3231(e)(2).
* * * * * * *
Subchapter D--General Provisions
* * * * * * *
SEC. 3231. DEFINITIONS.
(a) * * *
* * * * * * *
(e) Compensation.--For purposes of this chapter--
(1) * * *
(2) Application of contribution bases.--
(A) Compensation in excess of applicable base
excluded.--
(i) * * *
* * * * * * *
(iii) Hospital insurance taxes.--
Clause (i) shall not apply to--
(I) * * *
(II) so much of the rate
applicable under section
[3211(a)(1)] 3211(a) as does
not exceed the rate of tax in
effect under section 1401(b).
* * * * * * *
(B) Applicable Base.--
(i) * * *
(ii) Tier 2 taxes, etc.--For purposes
of--
(I) the taxes imposed by
sections 3201(b), [3211(a)(2)]
3211(b), and 3221(b), and
* * * * * * *
(4)(A) For purposes of applying sections 3201(a),
[3211(a)(1)] 3211(a), and 3221(a), in the case of
payments made to an employee or any of his dependents
on account of sickness or accident disability, clause
(i) of the second sentence of paragraph (1) shall
exclude from the term ``compensation'' only--
(i) payments which are received under a
workmen's compensation law, and
(ii) benefits received under the Railroad
Retirement Act of 1974.
* * * * * * *
Subchapter E--Tier 2 Tax Rate Determination
Sec. 3241. Determination of tier 2 tax rate based on average
account benefits ratio.
SEC. 3241. DETERMINATION OF TIER 2 TAX RATE BASED ON AVERAGE ACCOUNT
BENEFITS RATIO.
(a) In General.--For purposes of sections 3201(b), 3211(b),
and 3221(b), the applicable percentage for any calendar year is
the percentage determined in accordance with the table in
subsection (b).
(b) Tax Rate Schedule.--
------------------------------------------------------------------------
Average account benefits ratio Applicable
----------------------------------- percentage for Applicable
sections 3211(b) percentage for
At least But less than and 3221(b) section 3201(b)
------------------------------------------------------------------------
2.5 22.1 4.9
2.5 3.0 18.1 4.9
3.0 3.5 15.1 4.9
3.5 4.0 14.1 4.9
4.0 6.1 13.1 4.9
6.1 6.5 12.6 4.4
6.5 7.0 12.1 3.9
7.0 7.5 11.6 3.4
7.5 8.0 11.1 2.9
8.0 8.5 10.1 1.9
8.5 9.0 9.1 0.9
9.0 8.2 0
------------------------------------------------------------------------
(c) Definitions Related to Determination of Rates of Tax.--
(1) Average account benefits ratio.--For purposes of
this section, the term ``average account benefits
ratio'' means, with respect to any calendar year, the
average determined by the Secretary of the account
benefits ratios for the 10 most recent fiscal years
ending before such calendar year. If the amount
determined under the preceding sentence is not a
multiple of 0.1, such amount shall be increased to the
next highest multiple of 0.1.
(2) Account benefits ratio.--For purposes of this
section, the term ``account benefits ratio'' means,
with respect to any fiscal year, the amount determined
by the Railroad Retirement Board by dividing the fair
market value of the assets in the Railroad Retirement
Account and of the Railroad Retirement Investment Trust
(and for years before 2002, the Social Security
Equivalent Benefits Account) as of the close of such
fiscal year by the total benefits and administrative
expenses paid from the Railroad Retirement Account and
the Railroad Retirement Investment Trust during such
fiscal year.
(d) Notice.--No later than December 1 of each calendar year,
the Secretary shall publish a notice in the Federal Register of
the rates of tax determined under this section which are
applicable for the following calendar year.
* * * * * * *