What Is the Railroad Retirement Plan?

Learn how your benefits are calculated in the railroad workers plan

Railway workers using digital tablet to discuss work. Credit: Monty Rakusen / Getty Images

The Railroad Retirement Plan oversees national retirement benefits to U.S. railroad workers, collecting the taxes to fund the program and distributing benefits to retired workers, disabled workers, spouses and survivors.

Railroad workers don't participate in Social Security. Instead, they pay higher taxes than most employees who pay Social Security taxes, and those taxes are used to fund basic retirement benefits and to fund an investment trust, which generates returns for the pension fund.

The Railroad Retirement Board (RRB) and the Social Security Administration oversee the programs for the Railroad Retirement Plan. Although the two governing bodies are separate, they cooperate in determining an individual's benefits.

The National Railroad Retirement Investment Trust invests excess funds and uses the returns to pay for additional retirement pensions.

Benefits Under the Railroad Retirement Plan

The Railroad Retirement Plan offers two tiers of payment. Tier 1 makes basic retirement payments, while Tier 2 awards additional sums to retirees based on their length of service.

The average monthly retirement benefit for railroad retirement workers currently exceeds $2,400. For spouses, the benefit averages more than $900.

There are two tiers in the Railroad Retirement Plan, which can help you calculate your benefits.

Tier 1 gives workers basic credits, which can be used in both the Railroad Retirement and Social Security systems.

It uses Social Security formulas to calculate payments to retirees, but uses Railroad Retirement ages and service periods.

This plan is available to retirees who have served at least 10 years and to retirees who have served at least five years as of 1995.

Retirees with at least 30 years of service are eligible for full annuities at age 60.

Retirees with less than 30 years service are eligible for partial annuities at age 62 and full benefits at age 65, 66 or 77, depending on birth year.

The Tier 2 plan rewards railroad workers for longer service. The added benefits are similar to pensions offered in other industries.

This plan is available to retirees who meet the age and service requirements of Tier 1 retirees and who worked additional months beyond the normal contracted months of a salaried railroad job. Tier 2 is also available to retirees who maintain a current connection with the railroad industry. Current connection requirements include working for at least 12 months in the last 30 months prior to making a claim.

Retirees may earn credits for a maximum of 12 service months in a calendar year. 

Dual Social Security and Railroad Retirement Benefits

Railroad retirees who are eligible for Social Security payments are required to cancel those payments against income from the Railroad Retirement Plan.

However, the Railroad Retirement Plan compensates for that reduction with what's called a "vested dual benefit," which is about 75% of the retirement check.

This is paid in addition to the regular railroad retirement. Only retirees who qualified for dual benefits prior to 1975 and who meet other requirements are eligible for this benefit.

There are some advantages to this system:

  • Railroad workers who also have been employed in other industries that pay into the Social Security system may transfer their Railroad Retirement credits, benefits and taxes to the Social Security system.
  • Retirees may also be eligible for a refund from Social Security. These retirees must have paid taxes into both systems while working sometime between 1951 and 1974. The Social Security tax refund is paid as a one-time lump sum.
  • Retirement benefits may be passed to spouses, divorced spouses, widows, widowers, children and parents of deceased workers. In order for family members to qualify, the individual must have worked in the railroad industry at the time of retirement or death.

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    Railroad retirement payments grow each year with cost of living adjustments.

Of course, there are also some disadvantages:

  • Government regulations prevent railroad workers from receiving full benefits from both the Railroad Retirement and Social Security systems. A Railroad Retirement check cancels out any funds up to the amount that the retiree might qualify for through Social Security.
  • Retirees who received pensions from other U.S. government jobs, nonprofit organizations and some foreign governments after 1985 will have their Tier 1 payment reduced. The amount is usually not more than half the other pension.

The Bottom Line

The Railroad Retirement Program can be confusing, especially if you also have worked for a non-railroad employer and accrued Social Security benefits. However, the benefits can be relatively generous when compared to Social Security.

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