The May 2000 Locomotive Engineer Newsletter

Railroad Retirement package on hold

Debate over private investment causes delay in House Ways & Means Committee

According to the National Association of Retired and Veteran Railroad Employees (NARVRE), draft legislation to reform Railroad Retirement by increasing benefits and reducing carrier contributions has hit a stumbling block, which has delayed introduction of a bill.

In an Internet Special Notice distributed on May 13th, NARVRE reported that House Ways and Means Committee Chairman Bill Archer (R-TX) and Social Security Subcommittee Chairman E. Clay Shaw, Jr. (R-FL) have "several criticisms" of and "several objections" to the proposal.

The legislative package contains a number of important benefit improvements for railroad workers and their families, including increased annuities for surviving spouses, elimination of the Railroad Retirement maximum benefit, reduction in the number of years of service required for vesting, and elimination of the actuarial reduction for those who retire between ages 60 and 62. The proposal also would eliminate the carriers' Supplemental Annuity tax, providing the carriers with savings averaging about $52.8 million a year. And it would reduce their contribution to Tier II - the railroad industry pension - by $360 million, beginning in 2003.

The objections appear to be based on provisions in the draft legislation concerning private investment of Railroad Retirement funds. The original agreement between the carriers and eleven unions sponsoring the legislation provided for private investment of up to 50% of Tier II funds. All of Rail Labor supported this aspect of the proposal, because the increased investment income would help pay for benefit improvements.

However, when the draft legislation was released on April 6th, there was no cap on the percentage that could be privately invested. Further, Section 107 of the legislation proposes to eliminate the Social Security Equivalent Benefit (SSEB) Account and merge the funds into the Tier II, or Railroad Retirement Account. Under the current provisions of the Railroad Retirement Act, 45 U.S.C. §231n-1(b)(1)(A), Tier I taxes paid by employees and employers are appropriated into the SSEB Account.

The proposed package would permit private investment of these funds at the discretion of a Railroad Retirement Account Investment Board that would be created by the legislation. However, according to observers, these provisions lie at the root of the objections of the Republican leadership on the Ways and Means Committee.

Archer and Shaw are the architects of a plan that calls for private investment of nearly a third of the contribution by a worker covered under Social Security. However, the Archer/Shaw Social Security proposal would provide for the investment decisions to be made by each individual participant, meaning that each worker's benefit would be different, based on those individual investment decisions.

This contrasts with the Railroad Retirement proposal to empower a governmental agency with investment decision-making authority. Archer is a proponent of "keep(ing) Washington's hands off (retirement) funds" and believes that "(a)s a matter of principle, Uncle Sam should not be making private investment decisions ...."

Since the leading Presidential candidates of both major political parties have made the future of Social Security and possible reforms of that system a key part of their campaigns, it also appears that the issue of Railroad Retirement reform may be drawn into the national debate between those who favor privatization of Social Security and those who oppose it.

Developments on this issue continue to occur rapidly. Monitoring the BLE web site is the best way to remain informed (http://www.ble.org).