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Q&A: 2018 RRB financial reports

(Source: Railroad Retirement Board press release, July 15, 2018)

CHICAGO — The Railroad Retirement Board (RRB) is required by law to submit annual financial reports and triennial actuarial valuations to Congress on the financial condition of the railroad retirement system, as well as annual financial reports on the railroad unemployment insurance system. These reports must also include recommendations for any financing changes that may be advisable in order to ensure the solvency of the systems. In June, the RRB submitted its 27th Actuarial Valuation of the railroad retirement system’s assets and liabilities, and its financial report on the railroad unemployment insurance system.

The following questions and answers summarize the findings of these reports.

1. What were the assets of the railroad retirement and railroad unemployment insurance systems last year?

As of September 30, 2017, total railroad retirement system assets, comprising assets managed by the National Railroad Retirement Investment Trust and the railroad retirement system accounts at the Treasury, equaled $27.8 billion. The Trust was established by the Railroad Retirement and Survivors’ Improvement Act of 2001 to manage and invest railroad retirement assets. The cash balance of the railroad unemployment insurance system was $85.1 million at the end of fiscal year 2017.

2. What was the conclusion of the 27th Actuarial Valuation of the financial condition of the railroad retirement system?

The conclusion was that, barring a sudden, unanticipated, large decrease in railroad employment or substantial investment losses, the railroad retirement system will experience no cash-flow problems during the next 29 years. Under the current financing structure, actual levels of railroad employment and investment return over the coming years will determine whether corrective action is necessary.

3. What methods were used in forecasting the financial condition of the railroad retirement system?

The valuation projected the various components of income and outgo of the railroad retirement system under three employment assumptions, intended to provide an optimistic, moderate, and pessimistic outlook, for the 75 calendar years 2017-2091. The projections of these components were combined and the investment income calculated to produce the projected balances in the railroad retirement accounts at the end of each projection year.

Projecting income and outgo under optimistic, moderate, and pessimistic employment assumptions, the valuation indicated no cash-flow problems occur throughout the 75-year projection period under the optimistic and moderate assumptions. Cash-flow problems do occur under the pessimistic assumption, but not until 29 years from now in 2047.

4. How do the results of the 27th Actuarial Valuation compare with financial reports of previous years, including the 26th Actuarial Valuation?

The 26th Actuarial Valuation, issued in 2015, addressed railroad retirement financing for the 75 calendar years 2014-2088 and concluded that cash-flow problems arose only under the pessimistic assumption, and then not until 2047.

The 2016 financial report which addressed the 25 calendar years 2016-2040 and the 2017 report, covering the 25 calendar years 2017-2041, both indicated no cash-flow problems occur throughout their respective 25-year projection periods under any of the assumptions.

5. Did the 27th Actuarial Valuation of the railroad retirement system recommend any railroad retirement payroll tax rate changes?

The report did not recommend any change in the rate of tax imposed by current law on employers and employees.

6. What were the findings of the 2018 report on the financial condition of the railroad unemployment insurance system?

The RRB’s 2018 railroad unemployment insurance financial report was also generally favorable. Even as maximum benefit rates increase 51 percent (from $72 to $109) from 2017 to 2028, experience-based contribution rates maintain solvency. Unemployment levels are the single most significant factor affecting the financial status of the railroad unemployment insurance system. However, the system’s experience-rating provisions, which adjust contribution rates for changing benefit levels, and its surcharge trigger for maintaining a minimum balance help to ensure financial stability in the advent of adverse economic conditions.

Under experience-rating provisions, each employer’s contribution rate is determined by the RRB on the basis of benefit payments made to the railroad’s employees. Even under a pessimistic assumption, the report predicted average employer contribution rates well below the maximum throughout the projection period.

A 1.5 percent surcharge is in effect in calendar year 2018. Under all three employment assumptions, the report projects a surcharge of 1.5 percent in 2019, with a 1.5 percent surcharge probable in 2020 under the moderate and pessimistic assumptions, and intermittently thereafter.

7. What methods were used to evaluate the financial condition of the railroad unemployment insurance system?

The economic and employment assumptions used in the unemployment insurance report corresponded to those used in the 27th Actuarial Valuation of the retirement system. Projections were made for various components of income and outgo under each of the three employment assumptions, but for the period 2018-2028, rather than a 75-year period.

8. Did the 2018 report on the railroad unemployment insurance system recommend any financing changes to the system?

No financing changes were recommended at this time by the report.

# # #

The RRB’s 2018 financial reports on the retirement and unemployment insurance systems are available in their entirety under the Financial & Reporting tab (Financial, Actuarial, & Statistical ). Information on theNational Railroad Retirement Investment Trust , including its quarterly and annual reports, is also available.

Wednesday, August 29, 2018

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