At the end of fiscal year 2007, total railroad retirement system assets equaled $34.0 billion.  During fiscal year 2007, benefits totaling approximately $9.9 billion were paid under the Railroad Retirement and Railroad Unemployment Insurance Acts.  Retirement and survivor benefits accounted for almost all of this amount.  Net unemployment and sickness benefits totaled over $74.6 million.

Railroad Retirement and Survivor Program

As of September 30, 2007, total railroad retirement system assets, including those maintained in U.S. Treasury accounts and those maintained by the National Railroad Retirement Investment Trust (the “Trust” or “NRRIT”), equaled $34.0 billion, an increase of over $3.4 billion during the fiscal year. Amounts in the Railroad Retirement (RR) Account not needed to pay current administrative expenses and amounts in the Social Security Equivalent Benefit (SSEB) Account not needed to pay current benefits and administrative expenses are transferred to the NRRIT whose Board of seven trustees is empowered to invest Trust assets in non-governmental assets, such as equities and debt, as well as in governmental securities.

Financial Operations - U.S. Treasury Accounts

During fiscal year 2007, railroad retirement and survivor benefit payments were financed through four U.S. Treasury accounts.

The SSEB Account, established in fiscal year 1985, pays the portion of railroad retirement benefits equivalent to a social security benefit from various income sources related to these benefits. The RR Account funds retirement, survivor and disability benefits, in excess of social security equivalent benefits, from payroll taxes on employers and employees and other income sources.  Supplemental benefit payments are also paid from the RR Account.  The Dual Benefits Payments (DBP) Account and Federal Payments (FP) Account, funded by congressional appropriations from general revenues, finance the phase-out costs of certain vested dual benefits and interest on unnegotiated checks, respectively. The four accounts together incurred $9.8 billion in benefit obligations (excluding $1.2 billion in social security benefits which were reimbursed by the Social Security Administration) during fiscal year 2007.

Financing Sources

Payroll Taxes

The primary source of income to the railroad retirement and survivor program is payroll taxes levied on covered employers and their employees. Payroll taxes amounted to $4.9 billion, 35.5 percent of total financing sources and $183.5 million more than in fiscal year 2006.

Railroad employees and employers pay tier I taxes which, by law, are the same as social security taxes. The rate of 7.65 percent is divided into 6.20 percent for retirement and 1.45 percent for Medicare hospital insurance. The maximum amount of earnings subject to the 6.20 percent rate in calendar year 2007 was $97,500, and all earnings were subject to the 1.45 percent Medicare tax. In calendar year 2006, the maximum amount subject to the 6.20 percent tax was $94,200, with all earnings subject to the 1.45 percent Medicare tax. Both employees and employers also pay a tier II tax to finance railroad retirement benefit payments over and above social security levels. This tax, on earnings up to $72,600 in 2007 and $69,900 in 2006, was 3.9 percent on employees in 2007 and 4.4 percent in 2006. It was 12.1 percent on employers in 2007 and 12.6 percent in 2006.

Tier I and tier II taxes for fiscal year 2007 amounted to $2.5 billion and $2.4 billion, respectively.

Financial Interchange Transfers

The second major source of income to the railroad retirement and survivor program consists of transfers from the social security trust funds under a financial interchange between the two systems. The financial interchange is intended to place the Social Security Old-Age, Survivors and Disability Insurance and Hospital Insurance Trust Funds in the same position in which they would have been had railroad employment been covered by the Social Security and Federal Insurance Contributions Acts. This involves computing the amount of social security taxes that would have been collected on railroad employment, and computing the amount of additional benefits which social security would have paid to railroad retirement beneficiaries during the same fiscal year.

In the computation of the latter amount, credit is given for any social security benefits actually paid to railroad retirement beneficiaries. When benefit reimbursements exceed payroll taxes, the difference, with an allowance for interest and administrative expenses, is transferred from the Social Security Trust Funds to the SSEB Account. If taxes exceed benefit reimbursements (this has not happened since 1951), a transfer would be made in favor of the Social Security Trust Funds. The net financial interchange transfer to the SSEB Account during fiscal year 2007 amounted to $3.6 billion.

Retirement and Survivor Program
Financing Sources - Fiscal Year 2007 (In Millions)

GROSS TOTAL: $10,449.61

Costs - Fiscal Year 2007 (In Millions)

TOTAL: $10,113.3

Note.--Percentages may not add to 100 due to rounding.

Interest on Investments and Other Revenue

Interest revenue decreased from $53.8 million in fiscal year 2006 to $53.3 million in fiscal year 2007.  Interest revenue was also earned from financial interchange advances.

Federal Income Tax Transfers

Legislation enacted in 1983 subjecting social security and railroad retirement benefits to Federal income taxes also provided for a transfer of the tax revenues to the social security and railroad retirement systems for the payment of benefits. Revenue from income taxes on social security equivalent railroad retirement benefits is transferred to the SSEB Account.* Revenue derived from taxing regular railroad retirement benefits in excess of social security equivalent benefits is transferred to the RR Account. Revenue from taxing the vested dual benefits funded by the general revenue appropriations previously described is transferred to the DBP Account.

At the beginning of each quarter, income tax transfers are made from Treasury general funds to the SSEB, RR and DBP Accounts. These transfers are estimates of expected tax revenues for the quarter.  Adjustments are made later to reconcile the estimates for a taxable year with actual tax revenues for the year. On a cash basis, original tax transfers for fiscal year 2007 amounted to $466 million during the year. Original transfers for fiscal year 2006 totaled $441 million. There were no reconciliation adjustments in fiscal year 2007.  Net transfers in fiscal year 2006 were $473 million, including $32 million in reconciliation adjustments.

The information in the preceding paragraph is on a fiscal year basis, while the table below shows income tax transfers to the Accounts for taxable (calendar) years 1998 through 2007, including reconciliation adjustments through 2001. 

Federal Income Tax Transfers by Recipient Account
and Benefit Component,
Taxable Years 1998-2007 (Millions)

Railroad Retirement and Survivor Program

Consolidated Financing Sources, Costs and Net Position (Millions)1
For the Fiscal Year Ended September 30	2007	2006
Financing Sources: Payroll Taxes Financial Interchange Interest on Investments and Other Revenue Federal Income Taxes General Appropriations Other Transfers to the National Railroad Retirement Investment Trust Transfers from the National Railroad Retirement Investment Trust Total Financing Sources Costs: Benefit Payments Interest Expense Salaries and Expenses2 Other Total Costs Financing Sources over Costs Net Position - Beginning of Period Net Position - End of Period	$4,883.8 3,573.5 53.3 460.0 88.0 3,301.6 --- 1,391.0 13,751.2 9,823.0 179.8 111.1 (0.6) 10,113.3  3,637.9 29,779.4   $33,417.3	$4,700.3 3,467.8 53.8 452.0 98.1 1,717.6 --- 947.0 11,436.6 9,461.1 172.7 108.6 0.2 9,742.6 1,694.0 28,085.4 $29,779.4

National Railroad Retirement Investment Trust (NRRIT)

Source:  NRRIT

All NRRIT annual management reports and quarterly updates are available here.

General Appropriations

General revenue appropriations were provided by the Railroad Retirement Act of 1974 to fund the phase-out costs of certain dual railroad retirement/social security benefits considered vested prior to 1975, and by the Railroad Retirement Solvency Act of 1983 to fund interest on unnegotiated checks. The total amounts appropriated by the Congress for vested dual benefits were $88 million for fiscal year 2007 and $98 million for fiscal year 2006. These amounts include Federal income tax transfers for 2007 and 2006. The amount appropriated for fiscal year 2007 was 10.2 percent less than fiscal year 2006, reflecting the continuing decrease in eligibility for these benefits, which are not increased for the cost of living. The total amounts appropriated by the Congress for interest on unnegotiated checks were $150,000 for fiscal years 2007/2008 and also $150,000 for fiscal years 2006/2007.

Other Financing Sources

Other financing sources consisted of $8.5 million to be provided by the Office of Personnel Management to pay future retirement benefits to Railroad Retirement Board employees, $15.0 million from the railroad unemployment trust funds in transfers-in for current budget fiscal year salaries and expenses, and the increase in NRRIT net assets of $3,287.8 million. These financing sources were offset by transfers-out of $5.9 million for salaries and expenses of the Board’s Office of Inspector General, and a $3.8 million decrease in unexpended appropriations.

Costs

The Railroad Retirement Board pays all salaries and expenses under a single administrative fund (Limitation on Administration) for both the railroad retirement and survivor program and the unemployment and sickness insurance program. Consequently, of the $111.1 million and $108.6 million shown here for salaries and expenses in fiscal years 2007 and 2006, respectively, about $15.8 million for fiscal year 2007 and also $15.8 million for fiscal year 2006 were for the unemployment and sickness insurance program.  About $1.2 million in other costs for fiscal year 2007 and $1.2 million for fiscal year 2006 were for the unemployment and sickness insurance program.

Excluding $17.0 million from total costs of $10.1 billion for fiscal year 2007 and $17.0 million from total costs of $9.7 billion for fiscal year 2006, total costs for the railroad retirement and survivor program for fiscal year 2007 increased $370.5 million or 3.8 percent.

Benefit Payments

During fiscal year 2007, railroad retirement benefit payments increased $361.9 million or almost 3.8 percent to about $9.8 billion on an accrual basis, including $86.5 million in vested dual benefits and $60.7 million in supplemental annuities.

Interest Expense

Interest expense of $179.8 million represents interest on the financial interchange advances made by the U.S. Treasury during the fiscal year.

Salaries and Expenses

Excluding unemployment and sickness insurance salaries and expenses of $15.8 million for fiscal year 2007 and also $15.8 million for fiscal year 2006, salaries and expenses for the railroad retirement and survivor program were about $95.3 million for fiscal year 2007 and about $92.8 million for fiscal year 2006, a $2.5 million or 2.7 percent increase.  Adjusted by the $15.8 million in salaries and expenses and $1.2 million in other costs for the unemployment and sickness insurance program, fiscal year 2007 administrative expenses for the railroad retirement and survivor program were about 0.93 percent of total costs.

Other Costs

Other costs consisted primarily of post-retirement benefits (pensions, health and life insurance) for Railroad Retirement Board employees of $7.2 million for the railroad retirement and survivor program and $1.2 million for the unemployment and sickness insurance program. In addition, carrier refunds of $0.1 million were incurred. These costs were offset by approximately $8.0 million in reimbursements from the Centers for Medicare & Medicaid Services for Part B Medicare costs, as well as a reimbursement of approximately $0.4 million from the Board’s Office of Inspector General for Board-incurred expenses, and various other revenues of approximately $0.7 million.

National Railroad Retirement Investment Trust Operations

Funds not needed immediately for benefit payments or administrative expenses are invested. The National Railroad Retirement Investment Trust was established pursuant to section 105 of the Railroad Retirement and Survivors’ Improvement Act of 2001. 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 railroad retirement benefits. 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.

Fiscal year 2007 was a year of continued growth for the Trust. Assets were invested in a diverse portfolio of equity and debt securities with an asset allocation consistent with the Trust’s investment guidelines. As of September 30, 2007, the market value of Trust-managed assets had increased to $32.7 billion, reflecting a 16.38% rate of return for the fiscal year, compared to a 16.41% return for its composite benchmark. In addition, during fiscal year 2007 the Trust transferred almost $1.4 billion to the Railroad Retirement Account for the payment of railroad retirement benefits.

As of September 30, 2007, total railroad retirement system assets (Trust-managed assets and reserves held in the Treasury accounts) equaled $34.0 billion, an increase of over $3.4 billion during the fiscal year.

Trust operations are described in detail in the National Railroad Retirement Investment Trust Annual Management Report for fiscal year 2007, which is available here.

Benefit Operations

Retirement and survivor benefits paid, including vested dual benefits and supplemental employee annuities, totaled $9.8 billion in fiscal year 2007, $357 million more than in fiscal year 2006. Benefits were paid to about 615,600 beneficiaries in fiscal year 2007. Some 568,200 beneficiaries were being paid at the end of the year. The table shown below presents retirement and survivor benefit payments for fiscal years 2007 and 2006, by type of benefit, and the percent changes in payments between the 2 years.

Type of benefit	Amount (in millions)
	Fiscal year 2007	Fiscal year 2006	Percent change
Retirement benefits
Employee annuities Age Disability Supplemental	$4,349.1 2,063.6 60.8	$4,160.0 1,956.1 61.4	+4.5 +5.5 -1.0
Spouse and divorced spouse annuities	1,167.6	1,116.5	+4.6
Total	7,641.1	7,294.0	+4.8
Survivor benefits
Annuities Lump-sum benefits	2,152.4 4.0	2,142.5 4.3	+0.5 -8.5
Total	2,156.4	2,146.9	+0.4
Grand total	$9,797.4	$9,440.9	+3.8

                Note: Detail may not add to total due to rounding.

Under the two-tier railroad retirement formulas, the tier I annuity portion approximates a social security benefit and increases by the cost-of-living percentage applied to social security benefits. The tier II portion, which is comparable to retirement benefits paid over and above social security benefits to workers in other industries, increases by 32.5 percent of the social security percentage. Effective December 2005, tier I portions increased by 4.1 percent while tier II portions increased by 1.3 percent. Increases of 3.3 percent for tier I and 1.1 percent for tier II were effective December 2006.

The December 2005 and December 2006 cost-of-living increases provided additional benefit payments of about $227 million in fiscal year 2007, compared to payments in fiscal year 2006.

Monthly retirement and survivor benefits being paid numbered nearly 696,500 at the end of the 2007 fiscal year, about 9,700 less than at the end of the prior year. Monthly beneficiaries on the rolls declined by some 9,400 over the year, from 577,600 to 568,200. The number of monthly benefits paid is always greater than the number of beneficiaries on the rolls, since many annuitants receive more than one type of benefit. Although the second benefit is usually a supplemental employee annuity, some employees also receive a spouse or widow(er)’s annuity.

Regular employee annuities in payment status at the end of fiscal year 2007 numbered 277,600, about 2,100 less than at the end of the previous fiscal year. The number of age annuities being paid dropped from 195,400 to 193,300 over the year, while disability annuities remained the same at $84,300. Supplemental annuities being paid dropped approximately 200, numbering 121,200 at the end of the year. The number of divorced spouse annuities being paid remained the same at 3,500. Spouse and divorced spouse annuities together declined by more than 1,100, totaling 137,400 at year-end. Some 160,300 monthly survivor benefits were being paid at the end of fiscal year 2007, a decrease of 6,200 from the previous year.

Retirement

Regular employee annuities

Awards of regular employee annuities numbered 13,300 in fiscal year 2007, 1,200 more than in fiscal year 2006. Data by type of annuity awarded during the year are given in the table below.

            Note: Detail may not add to total due to rounding.

Railroad employees with 10 to 29 years of creditable service, or 5 to 9 years of service if at least 5 years were after 1995, are eligible for regular annuities based on age and service at age 62. Early retirement annuity reductions are applied to annuities awarded before full retirement age--the age at which an employee can receive full benefits with no reduction for early retirement. This ranges from age 65 for those born before 1938 to age 67 for those born in 1960 or later, the same as under social security. If an employee had any creditable railroad service before August 12, 1983, the retirement age for tier II purposes will remain 65. The reduction for early retirement is 1/180 for each of the first 36 months the employee is under full retirement age when his or her annuity begins and 1/240 for each additional month.

Rail employees with 30 or more years of service are eligible for regular annuities based on age and service at age 60. Certain early retirement reductions are applied if the employee first became eligible for a 60/30 annuity July 1, 1984, or later and retired at ages 60 or 61 before 2002. Employees who retire at 60 or older with at least 30 years of railroad service are referred to as 60/30 retirees.

Disability awards are based either on total disability or on occupational disability. A total disability annuity is based on disability for all employment and is payable at any age to employees with at least 10 years of railroad service. Employees with 5-9 years of service, if at least 5 years were after 1995, may qualify for tier I only before retirement age on the basis of total disability if they also meet certain social security earnings requirements. An employee is considered totally disabled if medical evidence shows that a permanent physical or mental condition exists which prevents the performance of any regular work. A condition is considered to be permanent if it has lasted or may be expected to last for at least 12 months.

An occupational disability annuity is based on disability for the employee’s regular railroad occupation and is payable to employees with a current connection with the rail industry at age 60 if the employee has 10 years of service, or at any age if the employee has at least 20 years of service. An employee is considered occupationally disabled if the physical or mental condition is such that the employee is permanently disabled for work in his or her regular railroad occupation, even though the employee may be able to perform other kinds of work.

Of the year’s 3,600 disability awards, 1,100 averaging $1,567 per month were for total disability and 2,500 averaging $2,749 were for occupational disability. Many employees who are disabled for all employment but are otherwise qualified for an occupational disability annuity are initially awarded occupational disability annuities in order to expedite payment.

Number of monthly beneficiaries,
September 30, 2002, and 2007 (Thousands)

Amount of benefits paid,
fiscal years 2002 and 2007 (Millions)

Average monthly amount,
September 30, 2002, and 2007

An estimated three-fifths of all employees awarded disability annuities will meet the medical criteria for a disability freeze determination. The standards for freeze determinations follow social security law and are comparable to the criteria for granting total disability. Also, an employee granted a disability freeze may qualify for early Medicare coverage and lower Federal income taxes on his or her annuity.

Of the employees who were awarded regular annuities in fiscal year 2007, nearly 9,500, or 71 percent, last worked for a railroad either in the calendar year their annuity began or in the preceding year. Such retirements are termed “immediate,” while those that occur 2 or more calendar years after the year of last railroad employment are called “deferred.” As a group, immediate retirees represent career railroad employees who worked in the industry until retirement. Awards based on immediate retirement averaged $2,859 per month, compared to $1,662 for the 3,800 awards based on deferred retirement. Immediate retirees averaged 32 years of railroad service, considerably more than the average of 20 years for deferred retirees. Of the year’s awards, 54 percent of normal age retirements were immediate. While 88 percent of all 60/30 retirements were immediate, only 16 percent of the reduced age awards to employees with less than 30 years of service were immediate. Immediate retirements accounted for 77 percent of the year’s disability awards.

The 277,600 retired employees on the rolls as of September 30, 2007, were being paid regular monthly annuities averaging $1,925. The table below gives data by type of annuity for these benefits.

            Note: Detail may not add to total due to rounding.

Of the 84,300 disability annuities being paid, 20,300 were for total disability and 64,000 for occupational disability. The two types of disability annuities averaged $1,346 and $2,213, respectively. In fiscal year 2007, over $333 million was paid in total disability annuities and $1,730 million in occupational disability annuities.

Approximately 192,400 employees on the rolls at the end of fiscal year 2007 were immediate retirees and their regular annuities averaged $2,256 per month. Annuities of the 85,200 deferred retirees averaged $1,176. Although their average railroad retirement annuity was much lower, a greater proportion of the deferred annuitants also received social security benefits--32 percent compared to 5 percent for the immediate retirees. Moreover, the average social security benefit paid to deferred retirees was higher than that paid to immediate retirees. Combined railroad retirement and social security benefits to deferred retirees who were dual beneficiaries averaged $1,385, while combined benefits to immediate retirees averaged $1,934. The table below gives numbers of beneficiaries and average benefit amounts for employees on the rolls who were receiving social security benefits, and for those who were not, by type of retirement.

Dual benefit status	Total	Type of retirement
		Immediate	Deferred
Receiving social security benefit
Number	36,500	9,000	27,500
Average monthly amount: Railroad retirement (regular) Social security Combined benefit	$551 970 1,520	$1,189 745 1,934	$342 1,043 1,385
Not receiving social security benefit
Number	241,100	183,400	57,700
Average monthly amount	$2,132	$2,309	$1,572

                        Note: Detail may not add to total due to rounding.

Regular employee annuities consist of as many as three components: tier I, tier II, and a vested dual benefit. Reductions for early age retirement are made in all components in cases where the employee retired before full retirement age with less than 30 years of railroad service. The tier I component is based on the employee’s combined railroad and social security covered earnings, and is reduced by the amount of any social security benefit that the employee receives. The gross tier I amounts of employees on the rolls at the end of fiscal year 2007 averaged $1,514 per month. Tier I amounts of some 8,100 employees were completely offset by social security benefits. Tier I amounts being paid averaged $1,368.

The employee tier II component is based solely on railroad earnings. Tier II amounts being paid at the end of fiscal year 2007 averaged $590. Employees are eligible for vested dual benefits if, based on their own earnings, they met certain vesting requirements and qualified for both railroad retirement and social security benefits at the end of 1974, or, in some cases, at the end of an earlier year of last railroad service. About 40,000 retirees were receiving vested dual benefits averaging $161 at the end of the fiscal year.

Supplemental employee annuities

A supplemental annuity is payable to employees with a current connection with the rail industry at age 60 if the employee has at least 30 years of service, or at age 65 if the employee has 25-29 years of service. The employee must also have had some rail service before October 1981.

Nearly 7,300 supplemental annuities were awarded in fiscal year 2007, about 1,600 more than in fiscal year 2006. About 5,400 of the awards (74 percent) began concurrently with the employee’s regular annuity, while the remaining 1,900 were to employees already receiving a regular annuity. Supplemental annuity awards averaged over $41 per month; 86 percent were at the current maximum rate of $43. Supplemental annuities are reduced for any part of a private railroad pension attributable to employer contributions. During the fiscal year, 1,800 supplemental annuities were not awarded because they were entirely offset by private pensions. In a few cases, the supplemental annuity was partially offset by the pension, or the supplemental annuity was not offset because the pension was reduced.

Supplemental annuities were being paid to almost 121,200, or 44 percent, of the retired employees on the rolls at the end of the 2007 fiscal year. These annuities averaged $42; some 300 of them were paid under 1937 Act amendments, which stipulated a maximum rate of $70.

Spouse and divorced spouse annuities

Annuity awards to spouses and divorced spouses of retired employees numbered 10,100 in fiscal year 2007, 1,200 more than in the previous year. The table below presents numbers and average amounts of spouse and divorced spouse annuities awarded during the year and being paid at the end of the year, by type of annuity and whether subject to age reduction.

          Note: Detail may not add to total due to rounding.

If an employee is at least age 62 and retires with 10-29 years of railroad service, or has 5-9 years of service and at least 5 years were after 1995, the employee’s spouse is eligible for an annuity at age 62. Full retirement age for a spouse is gradually rising from 65 to 67, depending on the year of birth. Early retirement reductions are applied to the spouse annuity if the spouse retires before full retirement age. The reduction for early retirement is 1/144 for each of the first 36 months the spouse is under full retirement age when her or his annuity begins and 1/240 for each month (if any) over 36.

If an employee retires with at least 30 years of service and is at least age 60, the employee’s spouse is eligible for an annuity at age 60. Prior to 2002, certain early retirement reductions were applied to the tier I component of such a spouse annuity if the employee retired before age 62, unless the employee attained age 60 and completed 30 years of service prior to July 1, 1984. If a 30-year employee retired at age 62, no age reduction applied to the spouse annuity. December 2001 legislation liberalized early retirement benefits for 30-year employees retiring at ages 60 or 61 after 2001 and their spouses. A spouse of an employee qualified for an age and service annuity is eligible for a spouse annuity at any age if caring for the employee’s unmarried child, and the child is under age 18 or the child became disabled before age 22.

Of the 2,500 reduced spouse annuities awarded in fiscal year 2007, 200 averaging $685 per month were to spouses of 30-year employees and some 2,300 averaging $414 were to spouses of employees with less than 30 years of service.

At the end of fiscal year 2007, about 133,900 spouse annuities averaging $716 per month were being paid. More than 3,500 divorced spouse annuities averaging $443 per month were also being paid. Families with an employee and spouse on the rolls were paid combined railroad retirement benefits averaging $2,732. This included $2,016 in regular and supplemental employee annuities and $716 in spouse annuities.

Approximately 53,600, or 39 percent, of the spouses and divorced spouses on the rolls were also receiving social security benefits. Combined railroad retirement and social security benefits to these annuitants averaged $1,083 per month, including $278 in railroad retirement benefits and $805 in social security benefits. Railroad retirement annuities to the 81,800 spouses not receiving social security benefits averaged $994, while railroad retirement annuities to the 2,000 divorced spouses not receiving social security benefits averaged $614.

Like regular employee annuities, spouse annuities consist of up to three components. The tier I component equals one-half of the employee’s tier I amount before any reduction for the employee’s social security benefit. The spouse tier I amount is reduced for the spouse’s receipt of a social security benefit and may be reduced for a spouse’s public service pension. The tier I portion may also be reduced if the spouse receives a railroad retirement employee annuity, but this reduction is usually restored through an addition to the spouse tier II amount. Divorced spouses receive only a tier I benefit.

The spouse tier II component equals 45 percent of the employee’s tier II amount. Railroad retirement amendments in 1981 precluded further awards of vested dual benefits to spouses.

Of the 133,900 spouses on the rolls at the end of fiscal year 2007, 93,000 were being paid tier I amounts averaging $624 per month. The tier I amounts of 40,900 spouses were completely offset by other benefits also due. Spouse tier II amounts averaged $301. Vested dual benefits averaging $134 were being paid to 1,200 spouses. The 3,500 divorced spouses on the rolls at the end of fiscal year 2007 were being paid tier I amounts averaging $457 per month, not reflecting all annuity adjustments.

Lump-sum retirement benefits

A lump-sum benefit may be payable at retirement to employees who received separation or severance payments after 1984. This benefit approximates the tier II payroll taxes deducted from separation or severance payments that did not yield additional service credits for retirement. Approximately $0.5 million was paid in separation/severance lump-sum benefits during fiscal year 2007.

Employees who have at least 10 years of railroad service and are not entitled to a vested dual benefit may be eligible for a dual retirement tax refund if they had concurrent railroad retirement and social security earnings within the period 1951-74. The refund is equal to the social security taxes that the employee paid on the combined railroad and social security earnings in excess of the annual railroad retirement creditable earnings maximum. During the 2007 fiscal year, the Board paid nearly 2,100 dual retirement tax refunds averaging $77. Most of the payments were to employees retiring during the year. Less than 100 refunds were to survivors, mostly widows, of employees who died before receiving the refund. Employees entitled to dual retirement tax refunds for years after 1974 may claim them on their Federal income tax returns.

Survivor

Monthly benefits

Annuity awards to survivors of deceased railroad employees numbered 8,100 during fiscal year 2007, 400 less than the previous year. About 160,300 survivor annuities were being paid at the end of the fiscal year, including 300 temporarily paid at spouse or divorced spouse annuity rates pending recomputation to widow(er)s’ rates. Almost 129,400, or 81 percent, of the survivor annuities were to aged widows and widowers.

The table below presents numbers and average monthly amounts of survivor annuities, by type, for those awarded in the year and those being paid at the end of the year.

              * Fewer than 50.

                 Note: Detail may not add to total due to rounding.

Survivor annuities, like regular employee and spouse annuities, consist of as many as three components: tier I, tier II and, for widows and widowers only, a vested dual benefit. As with spouses, legislation in 1981 precluded new awards of vested dual benefits to widow(er)s.

The tier I component is computed according to social security formulas and is based on the deceased employee’s combined railroad and social security earnings. A reduction is made for the survivor’s receipt of a social security benefit. There may also be a tier I reduction if the survivor receives a railroad retirement employee annuity or public pension. Remarried and divorced widow(er)s receive a tier I benefit only. A dependent parent receives only a tier I amount if another family member is also receiving benefits or if the parent has remarried.

Survivor tier II amounts are figured as a percentage of an employee tier II benefit. Prior to 2002, the percentages were 50 percent for a widow(er), 15 percent for a child, and 35 percent for a parent. The total tier II amount for a survivor family was subject to a minimum of 35 percent and a maximum of 80 percent of the employee tier II benefit, and all survivor tier II amounts were proportionately adjusted when either limit applied. December 2001 legislation established an “initial minimum amount” for widow(er)s which provides a tier II benefit equal to 100 percent of the tier II amount of the deceased employee. The maximum tier II amount payable to a family rose to 130 percent of the employee’s tier II amount. Widows and widowers are guaranteed a total tier I and tier II amount not less than what they were paid as a spouse, any necessary increase being added to tier II.

Aged widow(er)s, who are eligible for benefits at age 60, have their tier I and tier II amounts reduced if the annuity begins before full retirement age. The eligibility age for unreduced annuities is gradually rising from age 65 to age 67. The maximum age reductions range from 17.1 percent to 20.36 percent, depending on the widow(er)’s date of birth. Excluding about 300 annuities temporarily paid at spouse or divorced spouse rates, aged widow(er)s’ annuities being paid at the end of the 2007 fiscal year included 59,400 which were reduced for age. Aged widow(er)s’ tier I amounts being paid averaged $998 per month. In approximately 8,700 cases, the tier I amount was wholly offset by reductions for other benefits. Some 45,100 aged widow(er)s were also receiving social security benefits, and these averaged $752. Tier II amounts averaged $242. Almost 2,600 vested dual benefits averaging $68 were being paid to aged widow(er)s.

The tier I and tier II amounts of disabled widow(er)s’ annuities, which begin at ages 50-59, are reduced 28.5 percent for age. Tier I amounts being paid to disabled widow(er)s on the rolls at the end of fiscal year 2007 averaged $830 (in more than 200 cases, the tier I amount was wholly offset by reductions). Social security benefits being paid to more than 1,400 disabled widow(er)s averaged $725. Tier II amounts averaged $195, while the 200 vested dual benefits being paid averaged $83.

Tier I amounts paid to widowed mothers and fathers (widows and widowers caring for children) generally equal 75 percent of the full amount payable to an aged widow(er) before any reductions, similar to a social security mother’s or father’s benefit. Eligible children and grandchildren are paid this same tier I amount. However, if the sum of the tier I amounts of all members of a survivor family exceeds the social security family maximum, then tier I amounts are proportionately reduced so that the total equals the maximum. Reductions for the family maximum usually occur when the family includes three or more beneficiaries. Tier I amounts being paid as of the end of fiscal year 2007 averaged $1,091 for widowed mothers and fathers and $784 for children. Fewer than 50 mothers (fathers) and some 2,400 children received social security benefits averaging $791 and $516, respectively. Tier II amounts paid mothers (fathers) and children averaged, respectively, $407 and $94.

Lump-sum survivor benefits

A lump-sum death benefit can be payable at the time of an employee’s death only if there are no survivors immediately eligible for monthly benefits. For survivors of employees who had at least 10 years of railroad service before 1975, the lump-sum death benefit is based on the employee’s earnings through 1974, with a maximum amount of approximately $1,200. If the employee completed the 10th year of service after 1974, the lump-sum death benefit is limited to $255, the maximum benefit payable under social security law, and only the widow or widower living in the same household is eligible for the benefit. About 4,200 lump-sum death benefits averaging $905 were awarded during fiscal year 2007. More than 500 benefits were to widow(er)s, while 3,700 were to other individuals who paid the funeral expenses. Lump-sum benefits may also be payable to survivors of employees with less than 10 years of service, but at least 5 years after 1995, if the employee met the social security insured status requirements.

Another lump-sum survivor benefit, the residual payment, can be made if no other benefits based at least in part on an employee’s railroad service will be payable in the future, and the total of prior benefit payments is less than what the employee paid in pre-1975 railroad retirement taxes. The 30 residual payments awarded in the 2007 fiscal year averaged $2,674.

Medicare Enrollments

The Medicare program provides health insurance to persons ages 65 and older, as well as persons under age 65 who have been entitled to monthly benefits based on total disability for at least 24 months or who suffer from chronic kidney disease requiring hemodialysis or transplant. In addition to the basic hospital insurance, or Part A, plan, which is financed through payroll taxes, there is an elective supplementary medical insurance, or Part B, plan for which monthly premiums are charged.

Eligible railroad retirement annuitants and social security beneficiaries whose benefits are payable by the Railroad Retirement Board are automatically enrolled under both plans, but Part B may be declined. Eligible nonretired persons must apply in order to obtain Medicare coverage. The Board automatically enrolled nearly 23,600 beneficiaries for Medicare during fiscal year 2007. As of the end of the fiscal year, approximately 503,400 persons were enrolled in the Part A plan, and about 487,400 (97 percent) of them were also enrolled in Part B.

Except for benefits for services in Canada, which are paid from the Railroad Retirement Account, railroad enrollees are paid Part A benefits from the Federal Hospital Insurance Trust Fund, the same as persons covered under the social security system. Part B benefits are paid from the Federal Supplementary Medical Insurance (SMI) Trust Funds. The carrier for Part B claims of railroad Medicare enrollees made payments totaling $897 million in the 2007 fiscal year.

The regular monthly premium for medical insurance during fiscal year 2007 was $88.50 for coverage through December 2006 and $93.50 thereafter. Beginning in calendar year 2007, beneficiaries with modified adjusted gross incomes above certain thresholds pay higher Part B premiums.  The Board generally withholds Medicare premiums for annuitants from their benefit payments, and at the end of the fiscal year some 456,900 annuitants were having their premiums withheld. Of the remaining Part B enrollees, approximately 6,500 were paying premiums to the Board, either directly or through an intermediary, and 24,000 had their premiums paid by State agencies. The Board periodically transfers premiums to the SMI Trust Funds.

Railroad Unemployment and Sickness
Insurance Program

Financial Operations

Financing sources for the railroad unemployment and sickness insurance program during fiscal year 2007 exceeded costs by $3.1 million and the net position increased by $3.1 million from $106.7 million at the end of fiscal year 2006 to $109.8 million at the end of fiscal year 2007. For fiscal year 2007 as compared to fiscal year 2006, total financing sources for the railroad unemployment and sickness insurance program increased by $0.1 million (0.1 percent) to $77.7 million.

Railroad Unemployment and Sickness Insurance Program

Consolidated Financing Sources, Costs and Net Position (Millions)1
For the Fiscal Year Ended September 30	2007	2006
Financing Sources: Employer Payroll Taxes Interest Income Other Total Financing Sources Costs: Benefit Payments: Unemployment Sickness Total Costs Financing Sources over Costs Net Position - Beginning of Period Net Position - End of Period	$74.2 5.1 (1.6) 77.7 28.5 46.1 74.6 3.1 106.7 $109.8	$72.6 5.0 --- 77.6 30.7 41.9 72.6 5.0 101.7 $106.7

                       1 Prepared on an accrual basis of accounting.

Unemployment and Sickness Insurance Program
Financing Sources - Fiscal Year 2007 (In Millions)

GROSS TOTAL: $77.7

Costs - Fiscal Year 2007 (In Millions)

TOTAL: $74.6

 Financing Sources

The primary financing source of the railroad unemployment and sickness insurance program is a payroll tax on railroad employers, based on the taxable earnings of their employees. The employees themselves are not taxed.

Each employer pays taxes at a rate which takes into consideration its employees’ actual incidence of benefit usage. Under experience rating, employers whose employees have low incidences of unemployment and sickness pay taxes at a lower rate than those with higher levels of benefit usage. Each employer’s rate also has a component for administrative expenses and a component to cover costs shared by all employers. The rate applies to monthly earnings up to an indexed maximum. In calendar year 2007, the taxable earnings base was the first $1,230 of each employee’s monthly earnings. The earnings base is indexed each year by a rate which is equal to approximately two-thirds of the annual rate of increase in the maximum base for railroad retirement tier I taxes.

In 2007, the basic tax rates on railroad employers, including covered commuter railroads, ranged from a minimum of 2.15 percent (which includes a surcharge of 1.5 percent) to a maximum of 12 percent. Most employers were assessed the minimum rate in 2007. New employers in 2007 paid an initial rate of 3.75 percent.

Employer Payroll Taxes

Payroll taxes by employers totaled $74.2 million during fiscal year 2007. This was an increase of 2.2 percent or $1.6 million more than the previous year.

Interest

Cash not needed immediately for unemployment and sickness insurance benefits or operating expenses is held in the Federal Unemployment Insurance Trust Fund and invested by the Secretary of the Treasury. The fund earned an average rate of return of 4.8 percent in fiscal year 2007, of which the Railroad Retirement Board earned $5.1 million as its pro rata share.

Costs

Total costs for the railroad unemployment and sickness insurance program increased by $2.0 million (2.75 percent) to $74.6 million. These costs consisted solely of benefit payments.

Benefit Payments

During fiscal year 2007, unemployment insurance benefit payments decreased by $2.2 million (7.2 percent) to $28.5 million. Sickness insurance benefit payments increased $4.2 million (10.0 percent) to $46.1 million.

Benefit Operations

Net unemployment and sickness benefits totaling $73.2 million were paid in the 2006-2007 benefit year, $1.2 million less than in the prior year. Beneficiaries numbered 27,700 in comparison to the previous year’s total of 27,600. Over 800 employees received both unemployment and sickness benefits during the 2006-2007 benefit year. The number of unemployment benefit claimants increased by nearly 7 percent, while sickness benefit claimants decreased by over 3 percent. Total unemployment benefit payments decreased by 3 percent, while net sickness benefits decreased less than 1 percent. The number of employees qualified for benefits under the Railroad Unemployment Insurance Act rose over 2 percent to 250,200.

Benefits are payable for each day of unemployment or sickness in excess of 7 during the first 14-day registration period in a benefit year. During benefit year 2006-2007, there were 7,900 and 15,300 unemployment and sickness benefit waiting period claims, respectively.

Unemployment

About 9,500 railroad workers were paid $29.6 million in unemployment benefits during the 2006-2007 benefit year. The number of benefit claimants increased by 600 from the prior year total of 8,900, while the benefit amount fell $1.0 million from the year-earlier total of $30.6 million. The claimant count increased for the first time since benefit year 2001-2002.  The average number of compensable days per unemployment benefit claimant was 60 in benefit year 2006-2007 as compared to 61 in the previous benefit year.  This was the lowest number of compensable days since benefit year 2001-2002.

The mid-month unemployment count in the 2006-2007 benefit year began with a July count of 1,800 claimants. The count peaked at 4,700 in January, then dropped down to 1,700 in May and June of 2007. For the 2006-2007 benefit year as a whole, the weekly number of claimants averaged 2,500 in comparison to an average of 2,300 in the previous benefit year. The overall unemployment benefit claimant rate, measured in relation to numbers of employees qualified to receive benefits under the Railroad Unemployment Insurance Act during a particular time period, remained at the previous year's level of 4 per 100 qualified.  The median age of all unemployment benefit claimants was 43 years; it was 45 in the previous benefit year.

Sickness

The number of sickness benefit claimants during the 2006-2007 benefit year was 19,000, about 700 lower than in the previous year. The claimant count was the lowest since sickness benefits began in benefit year 1947-1948. Gross sickness benefits of $73.1 million were paid, $2.9 million less than in the prior benefit year. Net sickness benefits totaled $43.5 million, reflecting repayment of a large amount of benefits following settlements of suits for injuries. Benefits payable for an injury are recoverable if the claimant is awarded damages or receives a settlement for the injury. Net benefits decreased by $0.3 million in comparison with the previous year.

Major unemployment and sickness benefit operations,
benefit years 2006-2007 and 2005-2006

After experiencing no decreases during benefit years 1995-1996 through 2003-2004, the utilization rate for sickness benefits decreased for the third consecutive year and was at its lowest point since benefit year 1998-1999.  The average duration of sickness decreased to the lowest duration since benefit year 1988-1989.

Among the most common causes of sickness were injuries that included fractures or wounds (affecting 25 percent of beneficiaries), arthritis and disk disorders (22 percent), circulatory and heart disease (8 percent), and mental disorders, including drug and alcohol addictions (11 percent). The median age of all sickness benefit claimants was 52 years; it was 51 in the previous benefit year.

Claimants under the Railroad Unemployment Insurance Act,
Benefit Years 2002-2003 through 2006-2007

Unemployment and Sickness Benefit Claimants By Age,
Benefit Year 2006-2007

Railroad Employment

Average monthly railroad employment in fiscal year 2007 rose by less than 1 percent to 237,000 from the 235,000 average of the previous year. November 2006 had the highest level of employment in fiscal year 2007 with 239,000 and September 2007 had the low of 236,000. Average employment was the highest since fiscal year 2000-2001.
 

Average Railroad Employment
Fiscal Years 2003 through 2007