Supplemental Annuity Background

Prior to calendar year 2002, the railroad retirement supplemental annuity program was financed by a work hour tax on a pay-as-you-go basis under 26 USC 3221 (C) of the Internal Revenue Code. The Railroad Retirement and Survivor’s Improvement Act of 2001 (RRSIA) repealed the Railroad Retirement Supplemental Annuity Tax effective January 1, 2002. Supplemental annuities provided under the Railroad Retirement Act were not eliminated by the RRSIA, but are now funded through the National Railroad Retirement Investment Trust.

Who is eligible for a Supplemental Annuity?

A supplemental annuity can be paid to a retired employee who:

• has at least 25 years of railroad service with at least one month of covered service before October 1981;
• is entitled to a railroad retirement annuity; and
• had a current connection or "deemed current connection" with the railroad industry on the annuity beginning date.

Supplemental Annuity benefit amount

The gross supplemental annuity rate is based on an individual’s years and months of creditable railroad service. The minimum gross rate is $23 for 25 years of railroad service. An additional $4 is added for each full year of railroad service over 25 and up to 30. The maximum supplemental annuity is $43 for employees with 30 or more years of railroad service.

Employees, who are entitled to a private pension from a railroad employer, will have their supplemental annuity reduced by that part of the private pension financed by employer contributions. Supplemental annuities are not payable to spouse or survivor annuitants.

When can a Supplemental Annuity begin?

The supplemental annuity can begin as early as:

• Age 60, if the employee has at least 360 months of creditable service; or,
• Age 65, if the employee has 300 - 359 months of creditable service.

Type of employer pension which will reduce the Supplemental Annuity

“Employer pension” is a pension, other than Railroad Retirement benefits, provided to the employee by a railroad employer and which is based wholly or in part on employer contributions. Employer contributions do not include amounts deducted from an employee’s payroll or any contributions to the pension fund made by an employer in lieu of a wage increase under provisions of a collective bargaining agreement.

An "employer pension" must have a written plan which:

• is communicated to the employees to whom it applies;
• covers a defined group of employees; and
• • provides for the regular payment of benefits to employees under a set formula over a period of years.

  • Provides a lump sum payment

  • 401k distribution

Some 401(k) pension plans may reduce the Supplemental Annuity if they include employer contributions and meet the criteria listed above. The RRB will release Form G-88p, Employer’s Supplemental Pension Report to employers to determine if employer contributions are included in their pension plans.

Pension plans paid by Labor Organizations

Any employer pension paid by a labor organization to its office employees or employee representatives was excluded from the legislation that established the reduction to the supplemental annuity. These employer pensions are not considered to be a supplemental pension plans and do not cause a reduction to the RRB supplemental annuities.

How RRB obtains employer pension information

The following forms are used to obtain pension information necessary to pay supplemental annuities. Instructions for completion of these forms are in the Exhibits.

Form G-88p , Employer's Supplemental Pension Report	This form is released to the railroad employer when an employee, with at least 25 years of railroad service, files an annuity application, has attained the age requirement for the supplemental annuity, and is covered under an approved employer pension plan.
Form G-88r, Request for Information About New or Revised Employers Pension Plan	This form is released to employers when the RRB receives information about a new or revised pension plan.
Form G-88r.1, Request for Additional Information About Employer Pension Plan in Case of Change of Employer Status or Termination of Pension Plan	This form is released to employers when the RRB receives information about an employer termination of status or pension. The form requests information about the distribution of pension funds at the termination of a pension plan or change in employer status.

Completing Form G-88p, Employer’s Supplemental Pension Report

The RRB will complete items 1 – 7 to enter the employer’s identifying information and any additional information we have in our records about the employer’s pension.

The employer should complete the remaining items as follows:

If the pension is issued in monthly payments, this will be used to determine the reduction to the RRB Supplemental Annuity.

• Complete Item 8.

• Enter the pension name(s) in Item 9.

• Complete Item 10 and go to Item 12.

• Complete Items 12, 13, 14, 15, 16, 17a, 17b, 18 and 19.

Completing Form G-88p , Employer's Supplemental Pension Report, for a lump-sum payment followed by monthly payments

If the initial lump-sum payment is for a specific period and is followed by regular monthly payments, the monthly payments will be used to determine the reduction to the RRB Supplemental Annuity.

• Enter the lump-sum as Pension Number 1 in Item 9 and the monthly payments as Pension 2 in Item 9.

• In Item 11b (1), enter the beginning date of the lump-sum period, and complete 11c (1) or 11d (1) as appropriate.

• In Item 16e (1), enter the quotient of the lump-sum amount divided by the number of months in the specific period for which it is paid.

Example: An employee retired on March 1, 2006, and is entitled to an initial lump-sum payment of $1,050, covering the first three months of retirement, after which, he began to receive a monthly pension of $95.00 a month. The lump-sum payment of $1,050 is prorated to $350, for three months. Enter $350.00 in Item 16e (1).

If the employee will receive monthly payments after the lump-sum payment:

Complete Items 12 (check “Yes”), 13, 14, 15, 16, 17a, 17b, 18 and 19. Make your entries for the monthly payments in the Pension Number 2 boxes.

Completing Form G-88p , Employer's Supplemental Pension Report, for a lump-sum payment in lieu of monthly payments

If a lump-sum payment is made in lieu of monthly employer pension payments and a monthly employer pension amount can be computed, the computed monthly pension amount will be used to reduce the Supplemental Annuity.

• Complete Items 11 through 16 if the pension was paid on a monthly basis. If a part of this amount is based on employee contributions, enter the amount including the employee contribution. The RRB will adjust the amount for the employee contributions indicated in Item 17.

• Complete Item 11B with the earliest date all or part of the lump-sum was paid.

• Complete one of the following:

1. Item 11(c) with the lump-sum including employee contributions and list the yearly breakdown of employee contributions in Item 17b; or,

2. Item 11(d) with the lump-sum amount after subtracting out the total employee contributions plus any interest.

Example 1: An employee retired on March 1, 2006 and was entitled to a monthly employer pension of $4.05. In lieu of the monthly pension the employer paid a commuted lump-sum of $355. The RRB Supplemental Annuity will be reduced by the monthly pension rate of $4.05.

Example 2: An employee retired on March 1, 2006 and was entitled to a monthly employer pension of $250.00. In lieu of the monthly pension the employee elected to receive a lump-sum payment of $5,000. The RRB Supplemental Annuity will be reduced by the monthly pension rate of $250.00.

Completing Form G-88p , Employer's Supplemental Pension Report, for a lump-sum payment and a monthly rate that cannot be computed

If a lump-sum payment is made and a monthly pension amount cannot be computed, the Supplemental Annuity reduction will be computed by dividing the lump-sum payment, adjusted for employee contributions, by the Supplemental Annuity rate. This will result in a $1.00 for $1.00 reduction. After the lump-sum payment is reduced to zero, the employee will begin to receive the RRB Supplemental Annuity.

• Complete Item 11 (check “Yes”).

• Complete Item 11(b) with the earliest date all or part of the lump-sum was paid.

• Complete one of the following:

1. Item 11(c) with the lump-sum including employee contributions and the yearly breakdown of the employee contributions in Item 17(b); or,

2. Item 11(d) with the lump-sum amount after subtracting out the total employee contributions plus any interest.

• In Item 12 “X” the “No” box.