As an independent agency, the Railroad Retirement Board (RRB) is responsible for managing the pension and unemployment programs available for railroad workers. Retirement benefits are paid out of a special trust (currently worth $26.8 billion) that the RRB manages. The board also runs an unemployment program to assist railroad employees unable to work due to illness or injury. During FY 2010, the RRB paid almost $10.8 billion in retirement benefits to 582,000 beneficiaries and another $160 million in unemployment/sickness benefits to more than 38,000 claimants. The average annuity paid to retired rail employees was almost $2,215 a month.
Private industrial pension plans were first developed in the railroad industry in the 19th century, with the first established in 1874. However, the Great Depression exposed problems in these early retirement programs. While lawmakers debated during the mid-1930s how to create a Social Security system for all workers, railroad workers sought a separate railroad retirement system that would continue, if not expand, the existing railroad programs under a uniform national plan.
Legislation was enacted in 1934, 1935, and 1937 to establish a railroad retirement system that was separate from Social Security. Although the railroad retirement system has remained separate from Social Security, the two systems are closely coordinated with regard to earnings credits, benefit payments and taxes. The financing of the two systems is linked through a financial interchange whereby “the portion of railroad retirement annuities that is equivalent to social security benefits is coordinated with the social security system. The purpose of this financial coordination is to place the social security trust funds in the same position they would be in if railroad service were covered by the social security program instead of the railroad retirement program,” according to the RRB.
In addition to pension plans, unemployment insurance systems were also established in the 1930s. State unemployment programs were founded under the Social Security Act in 1935. While these state programs generally covered railroad workers, railroad operations that crossed state lines caused special problems. Unemployed railroad workers were denied compensation by one state because their employers had paid unemployment taxes in another. Although there were cases where employees appeared to be covered in more than one state, they often did not qualify in any.
A federal commission in the 1930s recommended that railroad workers be covered by a separate unemployment plan because of complications their coverage had caused state plans. Congress subsequently enacted the Railroad Unemployment Insurance Act in June 1938. The act established a system of benefits for unemployed railroaders, financed entirely by railroad employers and administered by the RRB. Sickness benefits were added in 1946.
Legislation enacted in 1974 restructured railroad retirement benefits into two tiers in order to coordinate them more fully with Social Security benefits. The first tier is based on combined railroad retirement and Social Security credits, using Social Security benefit formulas. The second tier is based on railroad service only and is comparable to the pensions paid over and above Social Security benefits in other industries.
The RRB is responsible for running pension and unemployment plans for railroad workers. The board determines payment of benefits under the retirement-survivor and unemployment-sickness programs. It operates numerous field offices to assist railroad workers and their families in filing claims for benefits, and it utilizes examiners to adjudicate claims, and information technology staff, equipment and programs to maintain earnings records, calculate benefits and process payments.
The RRB is headed by three members appointed by the President. One member is recommended by railroad employers, one by railroad labor organizations and the third, also the chairman, is considered a “public interest” representative. Board members serve for five years. The President also appoints an inspector general for the RRB.
The board employs actuaries to predict the future income and outlays of the railroad retirement system, statisticians and economists to provide vital data, and attorneys to interpret legislation and represent the RRB in litigation. Internal administration requires a procurement staff, a budget and accounting staff, and personnel specialists. The inspector general employs auditors and investigators to detect any waste, fraud, or abuse in the benefit programs.
The board reports to the President and Congress on its operations. Officials testify at Congressional hearings on proposed legislation to amend the Railroad Retirement and Railroad Unemployment Insurance Acts. Congress has jurisdiction over the amounts available to the railroad retirement system for benefit payments and for administration. RRB works closely with other government agencies, including the Office of Management and Budget, the Office of Personnel Management, the Government Accountability Office, the Department of the Treasury, the Social Security Administration, the Centers for Medicare & Medicaid Services, and state employment security departments.
http://www.rrb.gov/opa/agency_overview.asp - railroadindustryInformational programs are conducted by the RRB for railroad management and labor officials to explain details of the benefit programs so they may educate railroad workers about their benefit rights and responsibilities. Railroad employers and railway labor groups also cooperate with the RRB in a joint placement program to find jobs for unemployed personnel. These joint placement efforts are designed to reduce the costs of the unemployment insurance program. The RRB has direct contact with railroad employees through its field offices to assist them in applying for benefits.
Pension Program
Full-age annuities are payable at age 60 to workers with 30 years of service. For those with less than 30 years of service, reduced annuities are payable at age 62 and unreduced annuities are payable at full retirement age, which is gradually rising from 65 to 67, depending on the year of birth. Disability annuities can be paid on the basis of total or occupational disability. Annuities are also payable to spouses and divorced spouses of retired workers and to widow(er)s, surviving divorced spouses, remarried widow(er)s, children, and parents of deceased railroad workers. Qualified railroad retirement beneficiaries are covered by Medicare in the same way as Social Security beneficiaries.
Jurisdiction over the payment of retirement and survivor benefits is shared by the RRB and the Social Security Administration. The board has jurisdiction over the payment of retirement benefits if the employee had at least 10 years of railroad service, or five years if performed after 1995; for survivor benefits, there is an additional requirement that the employee’s last regular employment before retirement or death was in the railroad industry. If a railroad employee or his or her survivors do not qualify for railroad retirement benefits, the RRB transfers the employee's railroad retirement credits to the Social Security Administration, where they are treated as Social Security credits.
Payroll taxes paid by railroad employers and their employees are the primary source of funding for the railroad retirement-survivor benefit programs. Railroad retirement taxes, which have historically been higher than Social Security taxes, are calculated, like benefit payments, on a two-tier basis. Railroad retirement tier I payroll taxes are coordinated with Social Security taxes so that employees and employers pay tier I taxes at the same rate as Social Security taxes. In addition, both employees and employers pay tier II taxes, which are used to finance railroad retirement benefit payments over and above Social Security levels. These tier II taxes are based on the ratio of certain asset balances to the sum of benefit payments and administrative expenses.
Railroad Unemployment Insurance
Under the Railroad Unemployment Insurance Act, unemployment insurance benefits are paid to railroad workers who are unemployed but ready, willing, and able to work, and sickness benefits to railroad workers who are unable to work because of illness or injury. The RRB also operates a placement service to assist unemployed railroaders in securing employment. A new unemployment-sickness benefit year begins every July 1, with eligibility generally based on railroad service and earnings in the preceding calendar year. Up to 26 weeks of normal unemployment or sickness benefits are payable to an individual in a benefit year. Additional extended benefits are payable to persons with 10 or more years of service.
The railroad unemployment-sickness benefit program is financed by taxes on railroad employers under an experience-rating system. Each employer’s payroll tax rate is determined annually by the RRB on the basis of benefit payments to the railroad’s employees.
National Railroad Retirement Investment Trust
The National Railroad Retirement Investment Trust was established by the Railroad Retirement and Survivors’ Improvement Act of 2001 to manage and invest railroad retirement assets. The trust is a tax-exempt entity independent from the federal government that invests the assets of the Railroad Retirement Account in a diversified investment portfolio in the same manner as those of private sector retirement plans. (Prior to the act, investment of Railroad Retirement Account assets was limited to U.S. government securities.) As of December 2009, the trust’s assets stood at $24.8 billion, and in FY 2010, the total value of the trust’s assets was $25.1 billion. The amount of trust- and RRB-managed assets held in reserve as of March 31, 2011, was $26.8 billion.
Because it contains historical records on thousands of individuals who have worked for the railroads, the RRB makes available data to those doing genealogy research. The board will release information on deceased persons for such research, but it will not for living individuals without that person’s written consent. Records are limited to individuals who worked in the rail industry after 1936.
From the Web Site of the Railroad Retirement Board:
Benefit Forms and Publications
The Railroad Retirement Board has spent more than $91.4 million this decade on private contractors, according to USAspending.gov. A total of nearly 3,000 transactions were undertaken by the RRB for services or goods that included telecommunications work ($14.7 million), medical/psychiatric consultation ($8,654,913), ADP software ($7,292,288 ), evaluations and screenings ($5,335,322), and janitorial services ($4,850,139).
The top five recipients of RRB spending during this decade were:
1. QTC Management Inc. $8,495,094
2. IBM Corporation $5,347,164
3. Sentinel Technologies Inc. $5,046,886
4. Comprehensive Health Services Inc. $4,481,272
5. Ewing-Lundberg & Associates Inc. $4,412,614
In 2009 it was reported that, of all the agencies in the federal government participating in that year’s $792-billion stimulus package, the RRB had spent the most of its appropriated stimulus funds—88.4%. At that time, seven months after the package was approved, only 15% of the money had been spent by the various federal agencies.
Long Island RR Disability Controversy
More than 20 people were arrested by May 2012 for their involvement in a billion-dollar scheme involving the Long Island Railroad and the Railroad Retirement Board (RRB).
Beginning in 2008, The New York Times reported nearly all Long Island Railroad employees had received a federal pension boosted by additional disability pay. But investigators found many, possibly hundreds of workers, had filed fraudulent claims backed by a small number of local doctors involved in the scam.
A total of 21 individuals were charged, including two physicians accused of giving false diagnoses of disabilities. The phony claims added up to more than $1 billion in excessive federal disability pension payouts by the RRB. The case prompted U.S. attorney Preet Bharara to complain that, “The L.I.R.R. is a commuter railroad, not a gravy train.”
Some of the claimants were healthy enough to bike 400 miles, play golf and tennis several times a week, and shovel snow, according to prosecutors.
Part of the problem resided with the RRB, which sometimes had gone years without holding a formal meeting, rarely even getting together in private, while its staff rubber-stamped disability claims, approving some 98% of requests.
The Disability Board That Couldn’t Say No (by Walt Bodanich and Nicholas Phillips, New York Times)
Disability-Claims Inquiry Concluding for L.I.R.R. (by David Halbfinger, New York Times)
11 Charged in L.I.R.R. Disability Fraud Plot (by William Rashbaum and Mosi Secret, New York Times)
Railroad Workers Charged $1 Billion for Disability Fraud (Peterson, Logren & Kilbury)
FBI Arrests 11 in Probe of Massive LIRR Disability Scam (by Carl Horowitz, National Legal and Policy Center)
More L.I.R.R. Retirees Charged in Disability Fraud (by Russ Buettner, New York Times)
Vermont Politician Busted for RRB Fraud
James Fitzgerald, a Democratic lawmaker in the Vermont Legislature, was caught in 2007 trying to collect his pension from the RRB while still holding public office. Fitzgerald claimed he made a mistake when he collected $18,000 in federal pension benefits by informing the RRB in June 2003 that he had retired—when in fact he continued to work for the state until late 2004.
The state Attorney General’s office was preparing to sue Fitzgerald when he agreed to settle out of court. He reportedly paid $30,000 to settle the claims against him. Fitzgerald once served as mayor of Saint Albans.
Give RRB the Ability to Recover Payments
According to The Heritage Foundation, the federal government could save almost $50 million a year by granting the Railroad Retirement Board (RRB) new powers to collect overpayments. The think tank cites statistics from the board’s inspector general showing that of the $787 million in Medicare payments the RRB makes each year, $49 million is lost to fraud.
The House Transportation and Infrastructure Committee has recommended providing the RRB with the oversight powers to recover those funds, which could add up to $500 million in savings for the federal government over 10 years.
How Congress Can Achieve Savings of 1 Percent by Targeting Waste, Fraud, and Abuse (by Brian M. Riedl, Heritage Foundation)
- Table of Contents
- Overview
- History
- What it Does
- Where Does the Money Go
- Controversies
- Suggested Reforms
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