The Railroad Retirement Board calculates the tier I component for annuities based on age and service using a number of factors.
The following is an explanation of the terms involved.
First year of eligibility
For most cases, the Railroad Retirement Board considers the year the employee attains age 62, becomes disabled, or dies as his or her first year of eligibility.
However, in cases where benefits (either full or reduced) are paid at ages 60-61 based on 30 years of railroad service, the Railroad Retirement Board deems the year the annuity begins as the first year of eligibility.
Indexing is a process for bringing the actual reported earnings for prior years of employment up to the dollar value level of the recent earnings.
The indexing year is the second year prior to the first year of eligibility.
For a person attaining age 62 in 2014, the indexing year is 2012.
However, an employee born on January 1 is deemed to have attained his or her first year of eligibility in the prior year. Consequently, the applicable "indexing year," "indexing factors," and "bend points" will be for that earlier year.
To determine the indexing factor for a particular year, divide the average wage for the indexing year by the average wage in each prior year to obtain the indexing factor for each prior year.
Average wage for indexing year ÷
Average wage for (year) = Indexing factor for (year)
NOTE: Table 1 shows the indexing factors applicable to the earnings of workers who were first eligible in 2007-2014. The column entitled "National Wage Series" shows the average annual wage from 1951-2012.
EXAMPLE: For a person who attains age 62 in 2014, the
- indexing year is 2012.
- average annual wage for 2012 was $44,321.67.
To index earnings for a particular year, e.g., 1975, obtain from Table 1 the average annual wage for that year ($8,630.92). Then divide the average annual wage for 2012 ($44,321.67) by $8,630.92, which yields an indexing factor of 5.1352197.
For indexed earnings, multiply the employee's actual earnings covered under railroad retirement and/or social security in a particular year, up to the maximum earnings creditable, by the indexing factor to obtain the indexed earnings.
Employee's actual reported earnings for (year) x
Indexing factor = Indexed earnings for (year)
(but not exceeding the maximum annual taxable earnings)
NOTE: Refer to Table 3 for the maximum annual taxable earnings amounts.
Actual covered earnings in 1975 of $10,000 multiplied by 5.1352197, result in indexed earnings of $51,352.20 for 1975.
The AIME (Average Indexed Monthly Earnings) is the quotient obtained by dividing the total indexed earnings in the benefit computation years by the divisor months. The amounts less than $1 in the quotient are dropped so that the AIME is expressed in whole dollar amounts.
The PIA (primary insurance amount) is an amount determined by applying a formula to the AIME.
The formula consists of brackets in which 3 percentages are applied to the amounts of the AIME.
The dollar amounts defining the brackets are called "bend points," and the bend points are different for each calendar year the first year of eligibility is attained.
NOTE: Table 5 shows the bend points for the years 1979-2014.
The full PIA is payable to an employee retiring
- at age 60 with 30 (or more) years of service.
- at full retirement age with less than 30 years of service.
- at any age on the basis of disability.
The retirement age for unreduced benefits is gradually rising from 65 to 67, depending on the year of birth.
- maximum annuity reduction for retirement at age 62 is gradually increasing from 20 percent to 30 percent.
The retirement age for benefits increases as follows:
|2000 through 2004
||increasing from 65 to 66 at the rate of two months per year
|2005 through 2016
|2017 through 2021
||increasing from 66 to 67 at the rate of two months per year
|2022 and later
Reduced benefits continue to be available but at greater reductions.
For employees retiring in the year 2000 and later at age 62 with less than 30 years of service Table 2 shows the age reduction increases required.
NOTE: Age reductions were required in the tier I component of 30-year employees who retired at ages 60-61 before 2002 and attained age 60 or completed 30 years of service after June 1984. The age reductions are applied only to tier I. If an employee affected by this provision was born before 1938 and attained 60/30 eligibility after December 1985, tier I is permanently reduced by 20% if the employee was born on the first or second day of the month. Otherwise the reduction is 19.444%. For those born after 1937 who retired before 2002, the reduction ranged from 20.833% to 23.333%, depending on the year of birth. (In reduced 60/30 cases, tier I was rounded down to the nearest dollar.) In both cases, tier I is frozen until the first month throughout which the employee is age 62. It is then recomputed to reflect interim increases in national wage levels and will become subject to future cost-of-living increases. No reduction will apply if the employee retired at age 62 or older with 30 years of service, or at age 60 with 30 years of service and retirement is after 2001.
The reduced PIA is payable to an employee retiring as early as age 62 with less than 30 years of service.
To compute the reduced PIA, reduce the monthly benefit by 5/9 of 1% (or 1/180) for each of the first 36 months the employee is under full retirement age when the annuity begins and 5/12 of 1% (or 1/240) for each additional month.
An employee born in 1951 retires in 2014 at age 63 with less than 30 years of service. His annuity begins with the month he is age 63.
- The PIA is $750.
- This PIA is reduced by 20% (5/9 of 1% (0.0055555) multiplied by 36 months, with 36 being the number of months under his full retirement age of 66 years).
- Subtract the resulting reduction, $150.00, from $750 to obtain $600.00. Use this amount to the exact cent.
An employee born in 1952 retires in 2014 at age 62 with less than 30 years of service. His annuity begins with the first full month he is age 62.
- The PIA is $750.
- This PIA is reduced by 24.583% (5/9 of 1% (0.0055555) multiplied by 36 months and 5/12 of 1% (0.0041666) multiplied by 11 months, with 47 being the number of months under his full retirement age of 66 years).
- Subtract the resulting reduction, $184.37, from $750 to obtain $565.63. Use this amount to the exact cent.