The RRRB was created before Social Security, in 1934, modified in 1935, the same years SS was put into effect.
Our Tier II taxes, paid only by railroad workers, completely covers the administration cost of the plan, and the excess tier II tax is invested, the proceeds of those investments are used to cover unemployment insurance and disability payments, while also being reinvested back into the fund.
http://en.wikipedia.org/wiki/Railroad_Retirement_Board
Not hard to understand or grasp, your representative should be able to read and understand this simple article.
If they tell you anything other than what is in the link, they are hoodwinking you.
RRRB has zero effect on non –railroading citizens SS money.
Railroad Retirement suffers from the same program problem as its sister Social Security. Benefits are subject to a COLA but the surplus of current deductions, if any, over current benefit payments is invested in a fixed income security. In a normal economic period inflation largely zeros any real gain in the security obtained thru the interest payments. A period of extraordinarily “easy money” can have a dramatic negative effect on the fund investments real worth and its ability to fund the COLA adjusted future benefits.
An early retirement provision, such as at age 60 with 30 years of service, compounds the problem. It was much more defensible when the degree of hard manual labor content of many railroad jobs was much higher.
Those who believe that this kind of a system offers a degree of safety as compared to exposing the fund assets to greedy Wall Street types are being naive and shortsighted. . On the other hand exposing the fund assets to Wall Street easily could result in an even greater degree of venality among our political class.
There just isn’t an easy answer here folks!
So, help me out here, is taxpayer $$$ supporting early retirement (60/30)?
Ed
No. When the 60/30 provision was enacted, the railroads agreed to make up any shortfall in the funding mechanism that makes 60/30 possible. I’m sure if that provision kicked in too many times, the companies would have the law chanded. For now though, the companies are happy with it. Management are subject to and receive railroad retirement too.
Jeff
Jeff:
THanks for the clarification on the 60/30 rule. Tax code is extremely complex and way over my head.
Ed
As a non-railroader I would like to know, has any of the unions gone to talk to Representative Ryan about his plan? If he doesn’t know the that RRRB is self sustainable from regular taxes wouldn’t it be a good idea to tell him.
This is too deep in the trees to see the forest. Can somebody please present two short paragraphs that summarize both sides of the debate? Make it simple and clear please.
I am looking for a detailed summary of both sides of this argument in two short paragraphs; one explaining each side. Surely it must be possible.
According to the Wikipedia article that you referenced, the President’s budget included $6.95 billion for the Railroad Retirement Board. Was this for administrative purposes or was it to make up a fund balance shortfall?
On average the U.S. government is borrowing 40 cents of every dollar that it spends. Accordingly, if the same borrowing ratio applies to the $6.95 billion, it means the government has to borrow $2.78 billion to support the fund.
Although the Railroad Retirement Fund is not contributing to the deficit now, i.e. it has enough resources to pay current benefits, it could if the actuarial dynamics change significantly, which has been the case for Social Security.
According to the union article referenced in the opening post, surplus funds for railroad retirement have been invested in the same non-marketable securities that the surplus payroll taxes collect for Social
They most assuredly are the primary income for this pair of retirees–in fact, this year they’ll probably be the only income. We have a 401K at the ready, but no need at the current time. We are more time to spend money now, and almost as much money to spend (take-home) as we used to. The big change for me is that we now have to pay for the insurance we used to get as a benefit, and it isn’t as good. That could come into play down the road, but I’m hoping we can survive until Medicare can help us if it needs to.
One thing to note here: I’m assuming that for a couple on Social Security, the figure would be twice the average benefit quoted above. With Railroad Retirement, it doesn’t work that way: Pat does not collect Social Security (in spite of having contributed to it for quite a few years), and her Railroad Retirement benefit is about half of mine. So, yes, my benefit is higher than the average; hers is lower, but that figure isn’t really too far off.
Should Pat survive me, she will be entitled to a monthly benefit the equivalent of mine–a full share instead of half a share.
Never hear about congress cutting their own pension, do we?
If I stay working for the railroad continuous until I am 60, I will have put in 37 years. “Early retirement” my ___.
Side A:
Government (regardless of party affiliation) wants to “raid” the RRRB funds to replace the shortfall expected in SS funds.
Side B:
Railroaders think taking money from their privately funded retirement system to fix the general public retirement fund is un-fair.
The RRRB is a fully self-funded retirement plan; our contributions pay for the full administration cost of the fund.
While it is the Federal RR Retirement fund and operates under and through the Federal bureaucracy, the cost of that is paid for by the fund, the only time it would not be paid is if the fund fails to earn enough through the investments and employee contributions to cover its administration and operation cost, which has not happened.
Law requires railroaders, upon retirement, to draw first from whichever personal retirement fund (SS or RR retirement) they have contributed to most to, until that greater fund is exhausted.
Once that occurs, they may draw from the other, but not both at the same time.
Surviving spouses are also required to draw from the greater of the two funds…in essence, if my wife dies and I retire, I have to draw my retirement from the RRRB, it being the bigger of my two accounts, I have paid more into RR retirement than SS, (I would also be eligible for the death benefits percent from my wife’s SS account.)
If I die first, because my wife is younger than myself, she may draw a percent of my RR retirement until she retires, at which point she would have to draw from her SS account, and can als
Ed
Great explanation. I agree with your final statement. I didnt earn it and I sure dont want it.
I like that attitude, unfortunately that isnt the prevailing movement these days.
ed
Ed,
I would not want to pay into a private fund and have the government confiscate it. But I do not understand the issue at hand well enough to conclude that is being proposed with railroad retirement. I had the same questions when this topic came up once before on this forum about 6-12 months ago. So I set about researching the internet to find the answer, but my head exploded before I succeeded. I simply cannot remember the ground I covered in the quest, so I asked here for a simple explanation as a starting point.
I would think there would be fierce public resistance to the government simply confiscating private wealth, and that the backlash would extend beyond the ones being raided. So, what I would like to see is the position and rationale of the ones who are proposing this confiscation. That is what is missing from this discussion, and it was also missing from the same discussion 6-12 months ago.
Let me ask this:
When you pay into Railroad Retirement, are the actual dollars paid in, the same amount of money that can ultimately be returned as benefits? Or, is there a disconnect between the actual dollars paid in and the money returned as benefits, as is the case with social security? I suspect that it is the latter.
In reading about this, my sense is that Railroad Retirement is not as simple as just a private savings account in the name of the contributor/beneficiary. It sounds like it was created by the government as an exception to the social security program, as a concession to special circumstances related to the railroad industry, and that it has many strings attached to it just as social security does. &nbs
Sam,
The 6.95 billion is the proposed RRRB budget for this year, once the fund pays that budget back, the excess earnings from the trust is placed into the RRRB general fund.
The board cannot simply remove money from the fund to pay its administration cost, like all federal agencies, it must submit a budget for overview and approval.
The Feds pay for the proposed next year’s budget, and unlike most federal agencies, the fund pays that budget back.
So yes, in a manner of speaking, the private citizen does pay something to the RRRB, but the money is paid back, as required by the law that enacted/created the RRRB.
Social Security operates the same way, submitting a operating budget.
As for RR retirement being the primary source of income for retired railroad workers, yes in most instances.
My railroad has a 401K plan, the administration cost is paid for by the carrier, and like a lot of the guys here, I also have a private portfolio.
Payments to the 401K are by payroll deduction; we can contribute the difference between that amount and the plans maximum annual contribution amount if we wish.
Like Zug, I will have to put in a lot of years to draw the full amount, I will not qualify for the 60/30 plan, and to draw the full amount, I will have to work till I am 68.
I understand completely, get too far into it and yes, your head explodes.
Kinda like Nancy Pelosi saying, “We have to pass the bill before we can see what is in it”….say what?
Boiling it down to its simplest form, I will never recover the total amount of the money I contribute to the fund, unless I live to well over 100 years of age, simply because, unlike SS, more people are contributing more money into the fund, which is invested and profits the fund, than will withdraw money from the fund.
Even if I started to contribute at say, 18 if I had gone railroading then, I would still have paid more in that I would draw out, with the average life expectancy of 72, most current retirees draw 12 years, while having paid at least 30 years in on average.
You have what could be looked at as a “small” group of people paying into a fund, with a smaller group drawing out, and what we pay in tier II taxes monthly is a bit more than most private citizens pay in SS taxes.
SS is projected to have more people drawing more money out than the amount of money coming in from a shrinking group paying in.
Unless employment in the general populace skyrockets, it seems as if SS will bankrupt without additional taxation being applied, thus furthering the gap between paying in and drawing out.
With the number of railroad employees paying in remaining constant if not growing some, the amount of money the fund takes in plus the “profits” the fund investment program generates is remaining steady, with the possibility of it growing and the amount of money paying out shrinking with less retirees now due to the average younger age of the current railroader, almo
I have to correct something. The president proposes a budget. Congress then creates the actual budget. Once both houses of congress have passed the reconciled budget, the president then signs or vetoes it. Congress deserves much more credit for a balanced budget and blame for a deficit than the president.
Interesting topic - and a fascninating (and complex) situation to boot. Thanks for explaining how the RRRB system works Ed
Ed,
Thanks for that explanation. It is interesting that the system is set with employees putting more in than they are taking out, considering that SS is opposite these days. In looking into this, I see two different head-exploding realms. One is the relationship of the employee to the system, and the other is the relationship of the system to the social security system. The RRRET and SS systems seem like they are joined at the hip. I did find this explanation that details that relationship along with other information:
http://www.ssa.gov/policy/docs/ssb/v68n2/v68n2p41.html
Both SS and RRRET are government programs, so I don’t see any individual justice with either one as to the payback in relation to the contribution. They are free to do anything they want with benefits. However, I certainly can see why a recipient would oppose any reduction in benefits paid. That opposition would be the case with either program.
As the public sector runs out of money, they will look for more wherever it is available. So a large, solvent, fund is vulnerable. So are tax deferred retirement funds. People are attracted to them because the taxes are deferred, but they are open-ended contracts because the amount of the tax is not locked in.
But they can also simply reach into everyone’s private wealth and confiscate it by printing money as with QE3. They can end SS and RRRET benefits without ever lowering the amount simply by inflating the money supply. Everyone knows about inflation, but few realize its full potential.