Congress passes Railroad Retirement reform - Rail Update - Brief Article

Railway Age, Jan, 2002

After a long-fought battle, Railroad Retirement reform legislation finally went to the White House last month.

The U.S. House of Representatives gave the final Congressional seal of approval, passing the long-delayed legislation by a 369-33 vote. The measure, supported by rail management and labor and the Association of American Railroads, had passed the House in a preliminary vote 384-33, and then the Senate by a 96-0 vote. President Bush had nor taken a formal position on the legislation, but he was expected to sign it.

Railroad Retirement reform permits the system's $15.6 billion in Tier II funds to be pulled out of U.S. Treasury bonds and invested in private-sector stocks and bonds, and is expected to provide railroads with significant payroll-tax savings. It boosts surviving-spouse benefits by an average of $300 per month and permits railroaders 60 years of age with at least 30 years' service to retire with unreduced benefits, effective Jan. 1, 2002. Workers are vested in the system after five years, rather than the previous 10. Continued health benefits are provided by railroads until the retired worker reaches age 65 and is eligible for Medicare.

Railroad Retirement reform was hotly debated in Congress and delayed for about a year. Opponents of the legislation, among them Republican Senators Phil Gramm of Texas and Don Nickles of Oklahoma, said the measure will increase the federal deficit in 2002 and put taxpayer dollars at risk, should a shortfall occur from bad investments.

Proponents said that investing the funds in private securities will increase earnings, and that taxpayers will not be responsible for covering any shortfalls. Should the investments lose money, they said, the railroads will be responsible for insuring the solvency of the system by absorbing any shortfall through payroll tax increases. The investments would be controlled by a seven-person board consisting of three representatives each from labor and management, plus one person selected by those six.

The potential payroll tax savings for railroads, which is based on the rate of return, is estimated at $400 million a year. For example, based on a 2% increase in the rate of return, railroad payroll taxes would be cut from 16.1% to 14.2% by 2003. Employee contributions to Railroad Retirement will not go above the current 4.9%.