Railroad Retirement Board
Benefits Under Railroad Retirement and
Social Security
March 2009
Employers
and employees covered by the Railroad Retirement Act pay higher retirement
taxes than those covered by the Social Security Act, so that railroad
retirement benefits remain higher than social security benefits, especially for
career employees.
The
following questions and answers show the differences in railroad retirement and
social security benefits payable at the close of the fiscal year ending
1. How do the average monthly railroad
retirement and social security benefits paid to retired employees and spouses
compare?
The
average age annuity being paid by the Railroad Retirement Board (RRB) at the
end of fiscal year 2008 to career rail employees was $2,510 a month, and for
all retired rail employees the average was $1,980. The average age retirement benefit being paid
under social security was over $1,085 a month.
Spouse benefits averaged $740 a month under railroad retirement compared
to $520 under social security.
The
Railroad Retirement Act also provides supplemental railroad retirement
annuities of between $23 and $43 a month, which are payable to employees who
retire directly from the rail industry with 25 or more years of service.
2. Are the benefits awarded to recent
retirees generally greater than the benefits payable to those who retired years
ago?
Yes,
because recent awards are based on higher average earnings. Age annuities awarded to career railroad
employees retiring at the end of fiscal year 2008 averaged over $3,165 a month
while monthly benefits awarded to workers retiring at full retirement age under
social security averaged about $1,530.
If spouse benefits are added, the combined benefits for the employee and
spouse would approximate $4,490 under railroad retirement coverage, compared to
$2,295 under social security. Adding a
supplemental annuity to the railroad family’s benefit increases average total
benefits for current career rail retirees to nearly $4,525 a month.
3. How much are the disability benefits
currently awarded?
Disabled
railroad workers retiring directly from the railroad industry at the end of
fiscal year 2008 were awarded $2,685 a month on the average while awards for
disabled workers under social security averaged about $1,060.
While
both the Railroad Retirement and Social Security Acts provide benefits to
workers who are totally disabled for any regular work, the Railroad Retirement
Act also provides disability benefits specifically for career employees who are
disabled for work in their regular railroad occupation. Career employees may be eligible for such an
occupational disability annuity at age 60 with 10 years of service, or at any
age with 20 years of service.
4. Can railroaders receive benefits at
earlier ages than workers under social security?
Railroad
employees with 30 or more years of creditable service are eligible for regular
annuities based on age and service the first full month they are age 60, and
rail employees with less than 30 years of creditable service are eligible for
regular annuities based on age and service the first full month they are age
62.
No
early retirement reduction applies if a rail employee retires at age 60 or
older with 30 years of service and his or her retirement is after 2001, or if
the employee retired before 2002 at age 62 or older with 30 years of service.
Early
retirement reductions are otherwise applied to annuities awarded before full
retirement age—the age at which an employee can receive full benefits with no
reduction for early retirement. This ranges
from age 65 for those born before 1938 to age 67 for those born in 1960 or
later, the same as under social security.
Under
social security, a worker cannot begin receiving retirement benefits based on
age until age 62, regardless of how long he or she worked, and social security
retirement benefits are reduced for retirement prior to full retirement age
regardless of years of coverage.
5. Does social security offer any benefits
that are not available under railroad retirement?
Social
security does pay certain types of benefits that are not available under
railroad retirement. For example, social
security provides children’s benefits when an employee is disabled, retired or
deceased. Under current law, the
Railroad Retirement Act only provides children’s benefits if the employee is
deceased.
However,
the Railroad Retirement Act includes a special minimum guaranty provision which
ensures that railroad families will not receive less in monthly benefits than
they would have if railroad earnings were covered by social security rather
than railroad retirement laws. This
guaranty is intended to cover situations in which one or more members of a
family would otherwise be eligible for a type of social security benefit that
is not provided under the Railroad Retirement Act. Therefore, if a retired rail employee has
children who would otherwise be eligible for a benefit under social security,
the employee’s annuity can be increased to reflect what social security would
pay the family.
6. How much are monthly benefits for survivors
under railroad retirement and social security?
Survivor
benefits are generally higher if payable by the RRB rather than social
security. At the end of fiscal year
2008, the average annuity being paid to all aged and disabled widow(er)s
averaged $1,215 a month, compared to $1,030 under social security.
Benefits
awarded by the RRB at the end of fiscal year 2008 to aged and disabled
widow(er)s of railroaders averaged approximately $1,650 a month, compared to
$825 under social security.
The
annuities being paid at the end of fiscal year 2008 to widowed mothers/fathers
averaged $1,530 a month and children’s annuities averaged $880, compared to
$790 and $705 a month for widowed mothers/fathers and children, respectively,
under social security.
Those
awarded at the end of fiscal year 2008 averaged $1,920 a month for widowed
mothers/fathers and $1,295 a month for children under railroad retirement,
compared to $775 and $705 for widowed mothers/fathers and children,
respectively, under social security.
7. How do railroad retirement and social
security lump-sum death benefit provisions differ?
Both
the railroad retirement and social security systems provide a lump-sum death
benefit. The railroad retirement
lump-sum benefit is generally payable only if survivor annuities are not
immediately due upon an employee’s death.
The social security lump-sum benefit may be payable regardless of
whether monthly benefits are also due.
Both railroad retirement and social security provide a lump-sum benefit
of $255. However, if a railroad employee
completed 10 years of creditable railroad service before 1975, the average
railroad retirement lump-sum benefit payable is $1,000. Also, if an employee had less than 10 years
of service, but had at least 5 years of such service after 1995, he or she
would have to have had an insured status under social security law (counting
both railroad retirement and social security credits) in order for the $255
lump-sum benefit to be payable.
The
social security lump sum is generally only payable to the widow or widower
living with the employee at the time of death.
Under railroad retirement, if the employee had 10 years of service
before 1975, and was not survived by a living-with widow or widower, the lump
sum may be paid to the funeral home or the payer of the funeral expenses.
The
railroad retirement system also provides, under certain conditions, a residual
lump-sum death benefit which ensures that a railroad family receives at least
as much in benefits as the employee paid in railroad retirement taxes before
1975. This benefit is, in effect, a
refund of an employee’s pre-1975 railroad retirement taxes, after subtraction
of any benefits previously paid on the basis of the employee’s service. This death benefit is seldom payable.
8. How do railroad retirement and social
security payroll taxes compare?
Railroad
retirement payroll taxes, like railroad retirement benefits, are calculated on
a two-tier basis. Rail employees and
employers pay tier I taxes at the same rate as social security taxes, 7.65
percent, consisting of 6.20 percent for retirement on earnings up to $106,800
in 2009 and 1.45 percent for Medicare hospital insurance on all earnings.
In
addition, rail employees and employers both pay tier II taxes which are used to
finance railroad retirement benefit payments over and above social security
levels.
In
2009, the tier II tax rate on employees is 3.90 percent and on rail employers
it is 12.10 percent on employee earnings up to $79,200.
9. How much are regular railroad retirement
taxes for an employee earning $106,800 in 2009 compared to social security
taxes?
The
maximum amount of regular railroad retirement taxes that an employee earning
$106,800 can pay in 2009 is $11,259, compared to $8,170.20 under social
security. For railroad employers, the
maximum annual regular retirement taxes on an employee earning $106,800 are
$17,753.40 compared to $8,170.20 under social security. Employees earning over $106,800, and their
employers, will pay more in retirement taxes than the above amounts because the
Medicare hospital insurance tax of 1.45 percent is applied to all earnings.
Public Affairs 312-751-4777
Posted: 03//03/09