Railroad Retirement Board
Benefits Under Railroad Retirement and
Social Security
March 2007
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 2006 to career rail employees was $2,285 a month, and for all retired rail
employees the average was $1,790. The average age retirement benefit being paid
under social security was nearly $1,010 a month. Spouse benefits averaged $670
a month under railroad retirement compared to $485 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. For career railroad
employees retiring at the end of fiscal year 2006, regular annuity awards
averaged nearly $2,925 a month while monthly benefits awarded to workers
retiring at full retirement age under social security averaged more than
$1,350. If spouse benefits are added, the combined benefits for the employee
and spouse would approximate $4,105 under railroad retirement coverage,
compared to $2,030 under social security. Adding a supplemental annuity to the
railroad family’s benefit increases average total benefits for current career
rail retirees to over $4,140 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 2006 were awarded $2,495 a month on the average while awards for
disabled workers under social security averaged over $1,000.
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 2006, the average annuity being paid to all
aged and disabled widow(er)s averaged $1,115 a month,
compared to $955 under social security.
Benefits
awarded by the RRB at the end of fiscal year 2006 to aged and disabled widow(er)s of railroaders averaged more than $1,500 a month,
compared to $780 under social security.
The annuities
being paid at the end of fiscal year 2006 to widowed mothers/fathers averaged
$1,425 a month and children’s annuities averaged $825, compared to $730 and
$660 a month for widowed mothers/fathers and children, respectively, under
social security.
Those awarded
at the end of fiscal year 2006 averaged $1,310 a month for widowed
mothers/fathers and $1,020 a month for children under railroad retirement,
compared to $705 and $655 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 $980. 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 $97,500 in 2007 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 2007, 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 $72,600.
9.
How much are regular railroad retirement taxes for an employee earning $97,500
in 2007 compared to social security taxes?
The maximum
amount of regular railroad retirement taxes that an employee earning $97,500
can pay in 2007 is $10,290.15, compared to $7,458.75 under social security. For
railroad employers, the maximum annual regular retirement taxes on an employee
earning $97,500 are $16,243.35 compared to $7,458.75 under social security.
Employees earning over $97,500, 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: 04/15/07