Railroad unemployment insurance funds not needed immediately for the payment of benefits are deposited in the Railroad Unemployment Insurance Account maintained by the Treasury. This account, together with similar accounts for each State, forms a national unemployment trust fund. Deposits in the unemployment trust fund are invested by the Treasury in securities of the U.S. Government. Every quarter, the Railroad Unemployment Insurance Account and the Railroad Unemployment Insurance Administration Fund each receive a proportionate share of the interest earnings of the trust fund, based on average daily balances.
The Railroad Unemployment Insurance Administration Fund, separate from the Railroad Unemployment Insurance Account, pays the costs of administering the railroad unemployment insurance system. An amount equal to 0.65 percent of taxable payroll is set aside from railroad contributions for the Railroad Unemployment Insurance Administration Fund. Any amount in the Railroad Unemployment Insurance Administration Fund in excess of $6 million (on an accrual basis) on September 30 of any year is transferred to the Railroad Unemployment Insurance Account.
Borrowing Authority
To ensure adequate funds in periods of high unemployment, Congress gave the RRB authority in 1959 to borrow money from the Railroad Retirement Account for the payment of benefits from the Railroad Unemployment Insurance Account. Interest on money borrowed is paid to the Railroad Retirement Account at approximately the same rate as the Treasury pays on the investments of the Railroad Retirement Account.
After the borrowing authority was first used in July 1959, additional sums were subsequently borrowed in succeeding years as required. Payments on the debts to the Railroad Retirement Account were made whenever excess unemployment funds were available. Following 1963 financing amendments, indebtedness to the Railroad Retirement Account gradually declined from a then peak level of nearly $330 million and was liquidated in September 1973.
Subsequent to 1973, the Railroad Unemployment Insurance Account balance fluctuated into and out of the red until the early 1980s when the continuing recession in the national economy depressed rail traffic levels to the extent that large-scale layoffs were underway by early 1982.
Increased unemployment benefit payments resulting from the layoffs of over 25 percent of the rail industry's workforce made unprecedented demands on the Railroad Unemployment Insurance Account. By the end of fiscal year 1986, the debt to the Railroad Retirement Account was at its peak level of over $850 million.
The Railroad Retirement Solvency Act of 1983 established a Railroad Unemployment Compensation Committee to review all aspects of the unemployment and sickness insurance program and recommend to Congress adjustments in contributions and benefits resulting in the repayment of the loans from the Railroad Retirement Account before December 31, 2000. The Solvency Act precluded further borrowing after 1985 and levied a special excise tax on railroad employers and employee representatives to be used solely to repay loans from the Railroad Retirement Account. This tax, as amended by omnibus budget reconciliation legislation enacted in 1986, levied a 4.3 percent rate on wages up to $3,500 beginning July 1986, 4.7 percent in calendar year 1987 on wages up to $7,000, and 6 percent in 1988. The budget legislation restored the borrowing authority but provided an automatic unemployment insurance surtax on rail employers in the event further borrowing from the Railroad Retirement Account were necessary.
The Railroad Unemployment Insurance and Retirement Improvement Act of 1988, based on the recommendations of the Railroad Unemployment Compensation Committee, assured repayment of the unemployment system's debt to the retirement system by fixing the loan repayment tax at 4 percent in January 1989, with that rate remaining in force until the debt was fully repaid with interest. The previous $7,000 annual base for this tax was changed to an indexed monthly base of $710 in January 1989; in 1993, the base was $810. The 1988 amendments also eliminated the contingency surtax as of 1991, replacing it with a surcharge if the balance in the Railroad Unemployment Insurance Account falls below $100 million (as indexed), as described earlier.
In June 1993, the $180,242,000 balance of the Railroad Unemployment Insurance Account's debt to the Railroad Retirement Account was repaid in its entirety from cash reserves in the Railroad Unemployment Insurance Account. Repayment of the debt terminated the loan repayment tax.
Subsequent to the June 1993 repayment, the Railroad Unemployment Insurance Account has exercised its authority to borrow from the Railroad Retirement Account in 2002 (repaid in 2003) and most recently in 2009-2010 (repaid in 2011).