The Act of 1938 established a system of benefits for unemployed railroad workers, plus a free placement service, to be financed by a payroll tax of 3 percent, payable entirely by employers. After some minor changes in the following year, the law went into operation on July 1, 1939.
Benefits were payable to qualified railroad employees according to a scale of daily rates geared to base-year earnings. Initially, the daily rates ranged from $1.75 to $3 and were payable for a maximum of 80 days in each benefit year, after an initial waiting period. In 1940, the maximum daily rate was raised to $4 and the maximum duration to 100 days in 20 weeks; the waiting period was reduced from 15 days to 7 days and a uniform benefit year was established.
The first set of major amendments was enacted in 1946. The maximum duration was increased to 26 weeks and the maximum daily benefit rate to $5. The most important feature of these amendments was the program of cash sickness benefits (including maternity benefits) for railroad workers, paralleling unemployment benefits and financed from the same taxes. At that time, only two States, Rhode Island and California, had sickness plans. Three additional States (New Jersey, New York, and Hawaii) and Puerto Rico later adopted similar plans.
As a result of the very low rate of unemployment and relatively high payrolls during the war years, the balance in the Railroad Unemployment Insurance Account increased rapidly. Consequently, in 1948 the principle of a fixed contribution rate was abandoned and a sliding scale of contribution rates substituted. The rates were to range from 0.5 percent to 3 percent of taxable payroll, depending on the current balance in the Railroad Unemployment Insurance Account.
1950s
Amendments enacted in 1952 and 1954 raised the maximum daily benefit rate to $7.50 and then to $8.50, the base year earnings needed by an employee to qualify for benefits to $300 and then to $400, and the taxable limit on monthly earnings from $300 to $350. The amendments also provided that the benefit rate, subject to the maximum amount, should not be less than half the claimant's daily wage rate. In addition, normal benefits for unemployment or sickness in a benefit year were each limited in total to the employee's creditable base year earnings.
Legislation in 1959 increased the maximum daily benefit rate to $10.20, raised the benefit rate guaranty to 60 percent of the daily wage rate, and provided extended unemployment benefits for 13 weeks to employees with at least 10 years of service and 26 weeks of extended benefits to 15-year employees. These amendments also raised the base year qualifying amounts from $400 to $500 and the limit on creditable and taxable earnings from $350 to $400 a month. They removed the waiting period for unemployment benefits and the Sunday and holiday disqualification provision, and increased the maximum contribution rate to 3.75 percent. In addition, the RRB received authority to borrow money from the Railroad Retirement Account when necessary in order to pay benefits when due. Such loans were to bear the same interest rate as was being earned by other investments of the Railroad Retirement Account and were to be repaid as funds became available.
1960s
Amendments enacted in 1963 were designed to improve the financing of the system. The maximum contribution rate was increased to 4 percent, and the amount of base-year earnings needed by an employee to qualify for benefits was raised from $500 to $750. Also, a minimum base-year service requirement of 7 months was added for employees having no previous railroad service, and the disqualification for quitting work voluntarily without good cause was made more stringent.
In 1968, legislation increased the maximum daily benefit rate to $12.70 and provided extended benefits for sickness on essentially the same basis as for unemployment, except that these extended sickness benefits could not be paid to employees age 65 or older. These amendments also raised the base-year qualifying amount to $1,000, eliminated the special maternity benefit provisions (benefits were still payable for pregnancy and childbirth under the sickness benefit provisions), and added a disqualification for employees who receive separation allowances.
1970s
Amendments in 1975 increased the maximum daily benefit rate to $24 beginning on July 1, 1975, and to $25 starting on July 1, 1976. The 60 percent daily benefit rate guaranty was retained in the amended law up to the amount of the new daily maximum, and a new daily minimum rate of $12.70 was established. The amendments liberalized the basic eligibility requirements for new employees by lowering the 7-month base-year service requirement to 5 months. In addition, the 1975 amendments mandated a 7-day waiting period for benefit payments resulting from strikes. The tax rate schedule was increased, starting in 1976, from a maximum of 4 percent to a maximum of 8 percent, depending on the balance in the account, in order to finance the increased benefits. This legislation also lowered the waiting period for sickness benefits.
The 1975 legislation also provided extended unemployment benefit periods of up to 13 weeks for employees with less than 10 years of service during "periods of high unemployment." Under the pre-existing law, extended benefits were payable only to employees with 10 or more years of service. However, subsequent 1981 legislation repealing the "high unemployment" extended benefit provisions in the State unemployment programs nullified the related railroad unemployment insurance provisions, and the RRB was required to cease awarding extended benefits to employees with less than 10 years of service.
The Revenue Act of 1978 made unemployment benefits and sickness benefits paid in lieu of unemployment benefits subject to Federal income tax.
1980s
Amendments enacted in 1981 subjected the first six months of sickness benefits to tier I railroad retirement taxes, provided the benefits did not result from on-the-job injury. Legislation enacted in March 1983 provided unemployed railroad workers with less than 10 years of service, who exhausted normal railroad unemployment benefits, up to 10 weeks of temporary supplemental extended unemployment benefits, but these temporary benefits were financed from Federal general revenue funds.
The national economic recession of the early 1980s caused large-scale railroad layoffs. The layoffs increased unemployment benefit payments to record levels which far exceeded unemployment tax income and necessitated high levels of loans from the Railroad Retirement Account. The Railroad Unemployment Insurance Account owed the Railroad Retirement Account a peak amount of over $850 million at the end of fiscal year 1986. Financial measures to assist the Railroad Unemployment Insurance Account were included in the Railroad Retirement Solvency Act enacted August 12, 1983.
The Railroad Retirement Solvency Act of 1983 raised the taxable limit on monthly earnings from $400 to $600 and the base-year qualifying amount from $1,000 to $1,500. Also, the waiting period for benefits during strikes was increased from 7 to 14 days. In addition, a temporary repayment tax on railroad employers was scheduled to begin July 1, 1986, to initiate repayment of the loans made by the Railroad Retirement Account. And sickness benefits, other than those resulting from on-the-job injuries, were made subject to Federal income tax.
The legislation also mandated the establishment of a Railroad Unemployment Compensation Committee to review the unemployment and sickness benefit programs and submit a report to Congress. The Committee reviewed all aspects of the railroad unemployment insurance system, in particular, repayment of the system's debt to the Railroad Retirement Account, and the viability of transferring railroad unemployment benefit payments to State programs.
The Consolidated Omnibus Budget Reconciliation Act of April 1986 revised the 1983 law which had set a temporary unemployment insurance loan repayment tax beginning July 1, 1986, at a 2 percent rate with increases of 0.3 percent a year until 1990. The amended schedule required rates of 4.3 percent 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. This budget legislation also continued authority for borrowing by the Railroad Unemployment Insurance Account from the Railroad Retirement Account, but provided for an automatic unemployment insurance surtax on rail employers of 3.5 percent on annual wages up to $7,000 if further borrowing took place.
As a result of the Gramm/Rudman Act, unemployment and sickness benefits were reduced in fiscal year 1986 and were reduced periodically in subsequent years.
The 1986 Tax Reform Act made all unemployment benefits subject to Federal income tax, beginning with taxable year 1987.