Railroad Retirement Board
Railroad Retirement Service Credits and Pay
for Time Lost
May 2008
The Railroad Retirement Board (RRB) frequently
receives questions from railroad employers, employees, and employees’ legal
advisors about the RRB’s treatment of pay for time lost in retirement
cases. The most common type of pay for time lost situation 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 crediting of pay for
time lost under railroad retirement.
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
June 2007 and ending May 2008.” 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 $130 a day, the amount of pay for time lost allocated to each month
should be at least $1,300.
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 RRB. 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 RRB’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 RRB can determine whether the military service is creditable
as railroad service. The RRB will include creditable military service in
its records, which will expedite the annuity application process and also
ensure that the RRB’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 and/or employer
contributions under the Railroad Unemployment Insurance Act?
Yes. 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.
Unlike tier I and tier II
taxes, the amount of the employer contributions due under the Railroad
Unemployment Insurance Act is computed at the rates in effect,
subject to a monthly limit, during the months to which the payment is
allocated.
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?
For additional
information on pay for time lost, as well as other railroad retirement topics, an
employee should contact the nearest office of the RRB. Most RRB offices are open to the public from
Employees can find the address and phone
number of the Board office serving their area by calling the automated
toll-free RRB Help Line at 1-800-808-0772. They can also get this
information from the Board's Web site at www.rrb.gov.
Public Affairs 312-751-4777
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