Railroad Retirement Service
Credits and Pay for Time Lost
The Railroad Retirement Board frequently receives questions
from railroad employers, employees, and employees' legal advisors about the
Board's treatment of pay for time lost in retirement cases. The most common type of pay for time lost
arises out of personal injury settlements.
Other types include dismissal allowances, guaranteed wages, displacement
allowances paid for loss of earnings resulting from the employee being placed
in a position or occupation paying less money, and reinstatement awards which
include back pay.
It is important that agreements between employers and
employees involving pay for time lost are structured correctly for railroad
retirement purposes because they are often intended to provide an employee with
additional months of creditable service needed to qualify for railroad
retirement benefits. Crediting fewer
service months than intended may leave an employee ineligible for benefits,
while crediting an excessive number of months may delay the beginning date of
those benefits. The following questions
and answers describe the requirements for the railroad retirement crediting of
pay for time lost.
1. How do the railroad retirement laws treat pay for time lost?
Pay for time lost attributable to lost earnings for an
identifiable period of absence from active service is treated as compensation
creditable under the Railroad Retirement and Railroad Unemployment Insurance
Acts. Since the intent of an award for
pay for time lost is to treat the employee as if he or she had actually
performed compensated service during that period of time, the effect upon
railroad retirement eligibility and benefits is identical to the effect of
regular earnings for which service and compensation credit is received.
2. What factors should be taken
into account to ensure that pay for time lost will be creditable for railroad
retirement purposes?
A payment must be made with respect to an identifiable
period of time. The specific months
during the period of absence from active service must be identified, for
example "the 12 month period beginning September 2003 and ending August
2004." In the case of a payment for
personal injury, the entire amount is considered pay for time lost unless, at
the time of payment, the employer states that a particular amount of the
payment was for other reasons. The
compensation is considered earned in, and therefore creditable to, the
specified period.
An employment relationship must exist in the months to be
credited with pay for time lost.
Allocation toward future months is permissible as long as an employment
relation is retained for that period. If
a settlement agreement requires that an employee resign to receive the payment,
the employment relation ceases upon resignation. Allocation after the resignation date is not
allowed because it cannot be considered time lost as an employee. With respect to pay for time lost allocated
into the future, service months and compensation are not creditable until the
time lost has actually elapsed.
The allocation must also relate to the actual period of
absence from service for which payment is made.
Pay for time lost due to personal injury may not be allocated to service
months missing from an employee's record before the date of injury. Similarly, the amount of the pay for time
lost must relate to an employee's normal monthly pay. A monthly allocation of at least ten times
the employee's daily pay rate in effect on the date of injury is ordinarily
considered a reasonable relationship to actual lost earnings. A lesser amount would be considered a token
payment and would not be acceptable. For
example, if an employee normally earns $120 a day, the amount of pay for time
lost allocated to each month should be at least $1,200.
3. What other factors should be
considered to ensure that pay for time lost correctly provides the total of
railroad retirement service months intended?
It is of primary importance to have a precise breakdown of
an employee's service prior to any allocation.
As a starting point, an employee should check his or her most recent
Form BA-6, or the employee may request a service and compensation statement
from the Board. This will avoid
allocating pay for time lost to a month or months already reported as service
months. Occasionally, an employee will
have service months reported for vacation pay, or by another railroad
employer--for example, by reason of paid union activity. Credit can only be received once for any
given month. Because the period
specified is the period for which service credit is due, a month allocated to
the same month already on record may result in a shortage of the total months
desired.
In addition, deemed service months should not be considered
in the number of total service months when an allocation period is determined
if those deemed service months are within the allocation period. A pay for time lost allocation increasing
service and compensation will generally eliminate or reduce the number of
deemed service months on record for any affected year. Deemed service months are the product of a
calculation. If the components of that
calculation change as the result of an adjustment to service and compensation
due to a payment for time lost, then the number of deemed service months to
which an employee is entitled is likely to change.
Also, the possibility that an employee has creditable
military service should be considered because such military service may not be
reflected in the Board's records and may reduce the number of allocated months
needed to attain annuity eligibility.
Employees are encouraged to file proof of any military service well in
advance of retirement so the Board can determine whether the military service
is creditable as railroad service. The
Board will include creditable military service in its records, which will
expedite the annuity application process and also ensure that the Board's
records of an employee's service are as complete as possible.
4. Is pay for time lost subject
to railroad retirement tier I and tier II payroll taxes?
As with all compensation, pay for time lost is subject to
taxation under the Railroad Retirement Tax Act at the tier I and tier II tax
rates and annual maximum earnings bases in effect when payment is made. Pay for time lost is not, however, creditable
on the basis of when the payment is made, but to the period for which the
payment is allocated. Therefore, the
taxable amount and creditable amount will sometimes differ. The employee's portion of the railroad
retirement tax liability is usually withheld from the gross amount of the
award.
5. What effect would pay for
time lost have on the payment of a railroad retirement annuity or unemployment
or sickness benefits for the same days?
Because pay for time lost is considered earned in the month
allocated, an employee is not entitled to an annuity under the Railroad
Retirement Act with respect to any months to which pay for time lost has been
allocated. If an employee applies for
retirement benefits at the expiration of an allocation period, he or she should
submit documentation of the period covered by the agreement with the
application.
Similarly, an employee is not entitled to unemployment or
sickness benefits under the Railroad Unemployment Insurance Act with respect to
any months to which pay for time lost has been allocated. If a payment for time lost is made which
covers a period for which benefits under the Railroad Unemployment Insurance
Act were previously paid, the benefits would be subject to recovery.
6. Where can someone get more
information about pay for time lost?
Additional information on pay for time lost, as well as
other railroad retirement topics, is available on the Board's Web site at www.rrb.gov. In addition, specific questions can be
directed to the Railroad Retirement Board's
Office of Public
Affairs 312-751-4777
Posted: 08/07/04