Railroad Retirement Board Financial
Report
Summary Questions & Answers
The Railroad Retirement Board (RRB)
is required by law to submit annual reports to Congress on the financial
condition of the railroad retirement system and the railroad unemployment
insurance system. These reports must also include recommendations for any
financing changes which may be advisable in order to ensure the solvency of the
systems. In June, the RRB submitted its 2008 reports on the railroad
retirement and unemployment insurance systems.
The following questions and answers summarize the
findings of these reports.
1.
What were the assets of the railroad
retirement and railroad unemployment insurance systems last year?
As of
September 30, 2007 , total railroad retirement system assets, comprising assets
managed by the National Railroad Retirement Investment Trust and the railroad
retirement system accounts at the U.S. Treasury, equaled $34.0 billion.
The Trust was established by the Railroad Retirement and Survivors’ Improvement
Act of 2001 to manage and invest railroad retirement assets. The cash
balance of the railroad unemployment insurance system was $114.3 million at the
end of fiscal year 2007.
2. What was the overall finding of the 2008 report on the
financial condition of the railroad retirement system?
The 2008
report, which addressed railroad retirement financing during the next 25 years,
was generally favorable, concluding that, barring a sudden, unanticipated,
large decrease in railroad employment or substantial investment losses, the
railroad retirement system will experience no cash-flow problems during the
next 25 years. However, the 2008 report also indicated that the long-term
stability of the system is still questionable. Under its current
financing structure, actual levels of railroad employment and investment return
over the coming years will largely determine whether corrective action is
necessary.
3. What methods were used in forecasting the financial
condition of the railroad retirement system?
The 2008
report projected the various components of income and outgo of the railroad
retirement system under three employment assumptions for the 25 calendar years
2008-2032. The projections of these components were combined and the
investment income calculated to produce the projected balances in the accounts
at the end of each projection year.
Projecting
income and outgo under optimistic, moderate and pessimistic employment
assumptions, the 2008 report indicated no cash-flow problems occur throughout
the 25-year projection period under any of these assumptions.
4.
How do the results of the 2008 report compare with those of the 2007 report?
Both
employment and investment return exceeded expectations in calendar year
2007. The results are similar to last year with an improvement shown
under each employment assumption. Notably, projected tax rates are no
higher in any calendar year and are one percent lower in at least three
calendar years under each employment assumption.
5.
Did the 2008 report on the railroad retirement system recommend any financing
changes?
The
report did not recommend any railroad retirement financing changes. The
payroll tax adjustment mechanism provided by the 2001 legislation will
automatically increase or decrease tax rates in response to changes in fund
balance. Even under a pessimistic employment assumption, this mechanism is
expected to prevent cash-flow problems for the duration of the 25-year
projection period.
6. What were the findings of the 2008 report on the
financial condition of the railroad unemployment insurance system?
The RRB’s 2008 railroad unemployment insurance financial report
was also generally favorable. Even as maximum benefit rates increase 47
percent (from $59 to $87) from 2007 to 2018, experience-based contribution
rates are expected to keep the unemployment insurance system solvent. No
new loans are anticipated even under the most pessimistic assumption.
Unemployment
levels are the single most significant factor affecting the financial status of
the railroad unemployment insurance system. The experience-rating system
is designed to tie individual employer contribution rates to their level of
benefit claims, thereby adjusting the overall account balance to an appropriate
level.
The
report predicted that, even under the most pessimistic assumption, the average
employer contribution rate remains well below the maximum throughout the
projection period. The report also predicted that the 1.5 percent
surcharge in effect in calendar year 2008 will be followed by a 1.5 percent
surcharge for calendar years 2009-2010. A 1.5 percent surcharge is also
likely for calendar year 2011.
7. What methods were used to
evaluate the financial condition of the railroad unemployment insurance system?
The
economic and employment assumptions used in the unemployment insurance report
corresponded to those used in the report on the retirement system.
Projections were made for various components of income and outgo under each of
three employment assumptions, but for the 11 fiscal years 2008-2018, rather
than a 25-year period.
8.
Did the 2008 report on the railroad unemployment insurance system recommend any
financing changes to the system?
No
financing changes were recommended at this time.
The Railroad Retirement Board’s 2008 financial
reports on the retirement and unemployment insurance systems are available in
their entirety on the agency’s Web site at www.rrb.gov.
Information on the National Railroad Retirement Investment Trust,
including its quarterly and annual reports, is also available on the site.
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