Gross tier II
The formula for the gross tier II amount is 7/10 of 1% of the employee's average monthly railroad earnings (up to the tier II taxable maximum earnings base) in the 60 months of highest earnings, times the years of service in the rail industry.
.007 x Average monthly earnings x Years of service =
Tier II for highest 60 months of earnings
Table 4 shows the tier II taxable maximum earnings base from 1973-2014.
Example 1
An employee retired in December 2013 with 40 years of service. His earnings for the 5 years ending in 2013 (which were also his highest 60 months of earnings) were:
| 2009 |
$50,000 |
| 2010 |
$53,000 |
| 2011 |
$56,000 |
| 2012 |
$58,000 |
| 2013 |
$60,000 |
His total earnings ($277,000) divided by 60 equals average monthly earnings of $4,616. Multiplied by .007 (7/10 of 1 percent) yields $32.312, which when multiplied by his years of service (40) provides a tier II of $1,292.48.
Example 2
An employee retired in December 2013 with 35 years of service. Her annual earnings for the 5 years ending in 2013 (which were also her highest 60 months of earnings) were:
| 2009 |
$80,000 |
| 2010 |
$82,000 |
| 2011 |
$85,000 |
| 2012 |
$88,000 |
| 2013 |
$92,000 |
As her earnings were over the tier II taxable maximums, and since only annual earnings up to the tier II tax base can be considered in computing tier II, the following amounts would be used:
| 2009 |
$79,200 |
| 2010 |
$79,200 |
| 2011 |
$79,200 |
| 2012 |
$81,900 |
| 2013 |
$84,300 |
Her total creditable earnings for tier II purposes were $403,800, which yield average monthly earnings of $6,730. Multiplied by .007, this yields $47.11, which when multiplied by 35 provides a tier II of $1,648.85
Effect of a vested dual benefit
Reduce the gross tier II component by 25% of any gross employee vested dual benefit payable.
Age reductions
Apply age reductions to tier II for those employees retiring between ages 62 and full retirement age with less than 30 years of service.
The reduction 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.
Full retirement age is gradually rising as mentioned earlier. However, if an employee had any creditable railroad service before August 12, 1983, the retirement age for tier II purposes will remain 65.
No age reduction applies to employees who retire with 30 years of service.
NOTE.--Employees with 5-9 years of creditable service after 1995 are eligible for tier II benefits the first full month they are age 62. Their tier II benefits are subject to the same reductions that apply to employees with 10 to 29 years of service. If they are eligible on the basis of total disability, a tier II benefit is not payable until age 62 and that amount is reduced for early retirement.