Who manages your Railroad Retirement funds?

National Railroad Retirement Investment Trust began Wall Street investments in September

The National Railroad Retirement Investment Trust (NRRIT, or "the Trust") was established pursuant to Section 105 of the Railroad Retirement Survivor's Improvement Act of 2001 (the "Act") that was signed into law on December 21, 2001. The Act set February 1, 2002 as the date that the Trust was to become effective.

The sole purpose of the Trust is to manage and invest Railroad Retirement assets. The Act authorizes the Trust to invest 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.

The Trust has no powers or authority over the administration of the benefits under Railroad Retirement. Responsibility for administering the railroad retirement program, including eligibility determinations and the calculation of beneficiary payments, remains with the Railroad Retirement Board (RRB). The Trust is a tax-exempt entity independent from the federal government. It is domiciled in and subject to the laws of the District of Columbia.

The following questions and answers are provided by the U.S. Railroad Retirement Board to further explain the National Railroad Retirement Investment Trust.

 

What is the National Railroad Retirement Investment Trust?

he National Railroad Retirement Investment Trust (NRRIT, or "the Trust") was established by the Railroad Retirement and Survivors' Improvement Act of 2001 (the "Act"). The sole purpose of the Trust is to manage and invest Railroad Retirement assets. The Trust is a tax-exempt entity independent from the federal government. It is domiciled in and subject to the laws of the District of Columbia.

When did the Trust begin operations?

As provided for in the Act, the Trust began its work on February 1, 2002.

What authority does the Trust have?

The Act authorizes the Trust to invest 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. In addition, to carry out its mandate, the Trust's Board of Trustees ("Board") is authorized to make rules to govern its operations, to employ professional staff, and to contract with outside advisors to provide legal, accounting, investment advisory or other services necessary for the proper administration of the Trust. Administrative expenses of the Trust are paid out of Trust assets.

What is the relationship between the Railroad Retirement Board ("RRB") and the Trust?

The Trust and the RRB are separate entities. The RRB remains a federal agency and continues to have full responsibility for administering the railroad retirement program, including eligibility determinations and the calculation of beneficiary payments. The Trust has no powers or authority over the administration of benefits under Railroad Retirement. Under the Act, the Trust is required to act solely in the interest of the RRB, and through it, the participants and beneficiaries of the programs funded under the Railroad Retirement Act. The Act does not delegate any authority to the RRB with respect to day-to-day activities of the Trust, but the Act does provide that the RRB may bring a civil action to enjoin any act or practice of the Trust that violates the provisions of the Act or to enforce any provision of the Act.

How is the Trust's Board of Trustees chosen?

The Board is comprised of seven Trustees, three selected by railroad labor unions and three by railroad companies. The seventh Trustee is an independent Trustee selected by the other six Trustees.

The Trustees' terms are for three years and are staggered. The Act provides that on the initial Board, one each of the Labor and Management members would be selected for three year terms, one each for two year terms, and one each for a one year term. Thereafter, all terms are three years. The independent Trustee's initial and succeeding terms are three years.

Who are the Trustees?

The rail labor unions selected the following Trustees: Joel Parker, International Vice President, Transportation Communications Union, for the three-year term; Dan Johnson, General Secretary and Treasurer, United Transportation Union, for the two-year term; and George Francisco, Jr., President of the National Conference of Firemen and Oilers - SEIU, for the one-year term.

The railroad carriers selected the following Trustees: Thomas Hund, Executive Vice President and Chief Financial Officer, Burlington Northern Santa Fe, for the three-year term; James Hixon, Senior Vice President-Administration, Norfolk Southern Corporation, for the two-year term; and Bernie Gutschewski, Vice President-Taxes, Union Pacific Corporation, for the one-year term.

The Trustees elected Joel Parker as Chairman and selected John MacMurray as the independent Trustee. Mr. MacMurray is a pension fund professional with 30 years of experience in the field.

What obligations do the Trustees' have?

Under the Act, the Trustees are required to discharge their duties solely in the interest of the RRB, and through it, the participants and beneficiaries of the programs funded under the Railroad Retirement Act. The Trustees are subject to fiduciary rules similar to those required by ERISA (the Employee Retirement Income Security Act).

Is the Trust required to make any reports?

Yes. Under the Act, the financial statements of the Trust are required to be audited annually by an independent public accountant. In addition, the Trust must submit an annual report to Congress on its operations, including a statement of financial position, statement of cash flows, a statement on internal accounting and administrative control systems, the independent auditor's report, and any other information necessary to inform Congress about the operations and financial condition of the Trust. A copy of the annual report must also be submitted to the President, the RRB, and the Director of the Office of Management and Budget.

These reports will be posted on this web page as they are submitted.

What part of the Railroad Retirement program's assets is the Trust responsible for?

The Trust is responsible for investing the assets of the Railroad Retirement Account ("RRA"). The RRA funds Railroad Retirement tier 2 benefits (which are similar to a private pension plan) and certain aspects of tier 1 benefits (which generally are like Social Security) that exceed Social Security. An example of such a benefit is early retirement. The additional cost of retiring at age 60 instead of the normal tier 1/Social Security retirement age (currently transitioning from age 65 to 67) is paid from funds managed by the Trust.

Would an extended stock market decline affect the ability of Railroad Retirement to pay benefits?

No. Railroad Retirement benefits are a federal entitlement protected by statute. In addition, the Act relies upon a combination of features to ensure that Railroad Retirement would be able to meet its obligation to fund benefits to railroad retirees and their families:

This combination of measures - ample reserves, automatic tax adjustments to maintain the level of resources, and improved asset management - will strengthen the ability of Railroad Retirement to continue to meet its benefit obligations to both current and future retirees.

How does the Trust make decisions on the investment of Railroad Retirement assets?

The Trust is in the process of building a staff to direct and oversee the investment of Railroad Retirement assets. On August 1, 2002, the Trust hired Enos T. Throop, Jr. to serve as its Chief Investment Officer. Mr. Throop has more than 25 years of investment management experience, including 13 years with the United Mine Workers of America Health and Retirement Funds, where he served as Director of Investments since 1997. Mr. Throop is assembling a team of in-house professional staff and outside advisors to implement the Investment Guidelines adopted by the Trustees pursuant to the Act. These guidelines address such issues as the diversification of Trust assets into broad asset classes: equity and fixed income, as well as targets for sub-classes of assets, such as domestic and international equity; private equity; and investment grade and high yield bonds. Currently, the Trust is in the early implementation stages of diversifying its assets into a multi-asset class investment portfolio in accordance with these guidelines.

Has the Trust begun to make investments in the stock market?

Yes. The Trust began to make equity investments in September, 2002.

 

© 2002 Brotherhood of Locomotive Engineers