RRB issues annual financial statement
The Railroad Retirement Board is required by law to submit annual reports to Congress on the financial condition of the railroad retirement system and the railroad unemployment insurance system. These reports must also include recommendations for any financing changes which may be advisable in order to ensure the solvency of the systems. In June, the Board submitted its 2001 reports on the railroad retirement and unemployment insurance systems.
The following questions and answers summarize the findings of these reports.
1. How much money is in the Railroad Retirement Board trust funds?
By the end of fiscal year 2000, the net position of the railroad retirement trust funds was over $18.6 billion, while the railroad unemployment insurance account balance was $93.8 million.
2. What was the overall finding of the 2001 report on the financial condition of the railroad retirement system?
The 2001 report, which addressed railroad retirement financing during the next 25 years, was favorable. It concluded that, barring a sudden, unanticipated, large decrease in railroad employment, no cash-flow problems arise during the next 25 years. However, like previous railroad retirement financial reports, the 2001 report also indicated that the long-term stability of the system, under its current financing structure, is still dependent on future railroad employment levels.
Over the years, the main source of income to the railroad retirement system has been a payroll tax on railroad employment. The amount of income that the tax produces is directly dependent on the number of railroad employees covered under the system. Therefore, under current law, actual levels of railroad employment over the coming years will largely determine whether any financing changes are necessary to ensure the system's solvency.
3. What methods were used in forecasting the financial condition of the railroad retirement system?
The 2001 report projected the various components of income and outgo of the railroad retirement system under three employment assumptions, utilizing different patterns of changes and decreases in the railroad work force for the 25 calendar years 2001-2025.
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 2001 report indicated positive balances at the end of the projection period under all three assumptions.
However, under the optimistic and moderate assumptions the balances in the railroad retirement accounts continued to grow throughout the 25-year projection period, while under the pessimistic assumption the account balances began to decline after 2012.
4. Did the 2001 report on 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 on employers and employees. The absence of projected cash-flow problems for 25 years under even a pessimistic employment assumption indicated that an immediate increase in tax rates is not required.
5. What were the findings of the 2001 report on the financial condition of the railroad unemployment insurance system?
The Board's 2001 railroad unemployment insurance financial report was also generally favorable. Even as maximum benefit rates increase 52 percent (from $48 to $73) from 2000 to 2011, experience-based contribution rates are expected to keep the unemployment insurance system solvent, except for a small, short-term cash-flow problem in fiscal year 2002. However, projections show a quick repayment of the loans even under the most pessimistic assumption.
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 the experience rating provisions, each employer's contribution rate is determined by the Railroad Retirement Board on the basis of benefit payments made to the railroad's employees. The report predicted that, even under the most pessimistic assumption, the average employer contribution rate remains well below the maximum throughout the projection period.
The report also predicted that the 1.5 percent surcharge that is in effect in calendar year 2001 would increase to 2.5 percent in 2002 and 2003, and then revert to 1.5 percent in calendar year 2004.
6. 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 report on the retirement system. Projections were made for various components of income and outgo under each of three employment assumptions, but for the period 2001-2011, rather than a 25-year period.
7. Did the 2001 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.
© 2001 Brotherhood of Locomotive Engineers