Questions and Answers
The information on this page was provided to the RRB by the National Railroad Retirement Investment Trust
What is the National Railroad Retirement Investment Trust?
The 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 Current Trustees?
As of February 1, 2023, the Trustees selected by the rail labor unions are: George Francisco, Jr., President Emeritus, National Conference of Firemen and Oilers - SEIU; Joel Parker, former Special Assistant to the President and International Vice President, Transportation Communications Union (TCU/IAM); and William C. Walpert, National Secretary-Treasurer Emeritus, Brotherhood of Locomotive Engineers and Trainmen.
The Trustees selected by the railroad carriers are: Beth Miller, Treasurer, BNSF Railway Company; Chris Neikirk, Vice President and Treasurer, Norfolk Southern Corporation, and Bill Slater, Vice President of Finance and Treasury, CSX Corporation.
The Independent Trustee is Douglas J. Brown, Senior Vice President and Chief Investment Officer of Exelon Corporation.
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 management 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 are posted on the RRB's 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 assets transferred to it from 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 levels. 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. The Trust is also responsible for investing assets transferred to it from the Social Security Equivalent Benefit ("SSEB") Account. Investment of SSEB Account funds is limited by the Act to U.S. government securities.
Would an extended stock market decline affect the ability of Railroad Retirement to pay benefits?
Railroad Retirement benefits are a federal entitlement protected by statute. In addition, the Act relies upon a combination of features to ensure that the Railroad Retirement Board would be able to meet its obligation to fund benefits to railroad retirees and their families:
Fund Reserves: The Act is designed to maintain four to six years' worth of benefits in reserve to ensure a significant safety margin. (Over most of the 40 years prior to the Act, the reserve in the RRA had been less than four years.)
Automatic Tax Adjustment: The tier 2 tax rate on employers and employees is adjusted automatically pursuant to a statutory schedule that is designed to maintain a fund balance sufficient to pay between four and six years of benefits. If any tax increases are necessary, they would be borne primarily by rail employers. The rate for employees would never rise above 4.9 percent, the employee rate prior to passage of the Act. Because the tax rate is adjusted by formula rather than requiring congressional action, timely and effective tax adjustments are taken in the event of a period of lower-than-expected investment returns.
Asset Management: The Trust manages Railroad Retirement assets in the same way as private pension funds, providing the opportunity to earn a higher rate of return in a diversified portfolio than the six percent annual return that had been projected for the RRA. Higher investment returns would provide additional resources to fund benefit payments.
This combination of measures -- ample reserves, automatic tax adjustments to maintain the level of resources, and improved asset management -- strengthens 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 System Assets
Pursuant to the Act?
The Trustees have adopted Investment Guidelines that address such issues as the diversification of Trust assets into broad asset classes, such as domestic and international equity, private equity, real assets, and investment grade and high yield bonds. The Guidelines set out the criteria for investments made by the Trust and are regularly updated to ensure that they are responsive to the ever-changing investment environment. These Guidelines are implemented by the Trust's professional staff and outside investment managers who may be retained by the Trust. Investment performances are rigorously monitored by the Trust's Chief Investment Officer and staff and are subject to regular oversight by the Board of Trustees.
How does the Trust use outside investment managers and advisors?
The Act authorizes the Trust to diversify the investment of the assets of the Railroad Retirement system into asset classes in a manner similar to defined benefit plans of other U.S. industries. The Act directs the Board of Trustees to retain independent advisers to assist them in the formulation and adoption of investment guidelines, and permits the Board to retain independent investment managers to invest the assets of the Trust in a manner consistent with the investment guidelines. Under the Investment Guidelines adopted by the Trust, no more than 10% of the Trust's assets may be invested by an individual investment manager. (This limitation does not apply to assets invested by a manager retained to invest in index accounts.)
When did the Trust begin making investments in the stock market?
The Trust initiated investment in the stock market in September 2002, making a series of periodic equity investments over the following six months. Following this, the Trust achieved its initial target equity investment allocation in March 2003.
What is the approximate distribution of NRRIT investments in equities, bonds and other instruments?
The Trustees retained an independent investment advisory firm to conduct a comprehensive Asset/Liabilities & Asset Allocation study for the purposes of determining the most appropriate mix of assets for the Trust. The study analyzed the projected liabilities of the Trust and long-term expected return, risk, and the return correlation of various asset classes, as well as the expected return and risk of various portfolios of these asset classes. Using the guidance provided by this study, as well as updated analyses periodically performed by the Trust's investment staff, the Trustees have adopted the current asset allocation policy and target ranges set forth below.
Asset Class Target Allocation
US Equity 31%
Non-US Equity 24%
Private Equity 12%
Global Equity 67%
US Fixed Income/Convertibles 10%
Non-US Fixed Income/Convertibles 2%
Private Debt 2%
Global Fixed Income 14%
Real Estate 10%
Global Real Assets 10%
Absolute Return 4%
Total Fund 100%
What has been the effect of recent years' market volatility on Railroad Retirement assets?
As noted above, the Railroad Retirement and Survivors' Improvement Act authorized NRRIT to invest Railroad Retirement assets in a broad range of government and private securities in the same way as other private pension funds. The Act also created a safety net in the form of an automatic tax adjustment – if fund assets drop below the amount needed to pay four years of benefits, the tax rate is automatically increased to as much as 22.1 percent on employers and up to 4.9 percent for employees.
During the first six years of NRRIT's operations, Railroad Retirement system assets experienced substantial growth, resulting in automatic tax cuts for both employees (from 4.9 to 3.9 percent) and employers (from 13.1 to 12.1 percent), as well as a build-up of a significant financial cushion. Like the assets of most pension funds, NRRIT assets declined as a result of the general economic downturn beginning in 2008 and have fluctuated over the last several years due to market volatility. However, the cushion built up over the previous years mitigated the impact on the system, and economic expansion in recent years has been mostly strong. As of December 31, 2022, Railroad Retirement system assets stood at $26.1 billion compared to $20.7 billion at NRRIT's inception. It should also be noted that since inception, $32.1 billion in NRRIT earnings have been transferred to the Treasury to pay retirement benefits.
What steps has NRRIT taken in response to changes in the investment environment?
The NRRIT Board of Trustees, which has three representatives from rail unions, three from rail management and an independent trustee, continually monitors the Trust's investment strategies and makes needed adjustments. The Trust's Board and its investment staff regularly evaluate the performance of the Trust's investment managers and have taken steps to terminate underperforming managers where appropriate. In this volatile investment environment, the Trust has also taken prudent steps to increase its cash position to ensure sufficient liquidity to meet all Trust and Railroad Retirement Board needs. The Board of Trustees will continue to manage the assets of the Trust as a patient, long-term investor, recognizing its responsibilities to the Railroad Retirement system, its workers and its retirees. As a long-term investor, the Trust expects to benefit from the long-term recovery of financial markets.
Where can I learn more about NRRIT activities and performance?
The RRB web site contains the Annual Management Reports of NRRIT as well as the Trust's Quarterly Updates. To view and download the report in PDF, you need the free Acrobat Reader. We recommend using the latest version. These documents contain more detailed information concerning the operations of NRRIT.