What Is the Railroad Retirement System?

Definition & Examples of the Railroad Retirement System

Railway worker making notes at night
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The Railroad Retirement system is a comprehensive national retirement benefit program for U.S. railroad workers and certain family members.

Understand the structure and benefits of this unique system to plan for and achieve financial security in retirement.

What Is the Railroad Retirement System?

The Railroad Retirement System offers monthly benefits to retired and disabled railroad workers and their dependents, as well as to survivors of deceased workers. These benefits offer income protection to railroad workers in retirement and amidst disability or temporary sickness or unemployment.

  • Alternate name: Railroad Retirement program

How the Railroad Retirement System Works

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

Congress first created the Railroad Retirement system during the 1930s amidst doubt that pension programs at the time could provide railroad workers income assistance as they aged. The program added unemployment benefits in 1938 under the Railroad Unemployment Insurance Act. Amendments in 1946 expanded the system's scope to include survivor, sickness, and disability benefits, and spousal benefits were introduced in 1951.

Today, the system is separate from and parallel to the Social Security Administration and is overseen by the administration and the Railroad Retirement Board. The Social Security Administration collects taxes to fund the program, while the Railroad Retirement Board is tasked with distributing benefits to eligible railroad industry employees and their family members to provide income assurance during retirement. These two governing bodies cooperate in determining an individual's benefits. A third body, the National Railroad Retirement Investment Trust, invests excess funds and uses the returns to pay for additional retirement pensions.

Benefits of the Railroad Retirement System

Key benefits offered under the Railroad Retirement program include a retirement annuity, disability annuity, survivors' annuity, and unemployment and sickness benefits.

Retirement Annuity

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

The Tier-1 portion of the payment is based on combined credits under the Railroad Retirement and Social Security systems. It uses Social Security formulas to calculate payments to retirees but Railroad Retirement ages and service periods. To calculate the payment, an employee's creditable earnings are adjusted to account for fluctuations in lifetime earnings, and the adjusted earnings are used to figure the worker's indexed monthly earnings. In 2020, the total Tier-1 payment amounts to the sum of 90% of the first $960 of indexed monthly earnings, plus 32% of the earnings over $960, plus 15% of the earnings over $5,785.

This plan is available to retirees who have served at least 10 years of service for a covered employer under the Railroad Retirement Act, or at least five years after 1995. Retirees with at least 30 years of service are eligible for full annuities at age 60. Retirees with less than 30 years of service are eligible for partial annuities at age 62 and full benefits at age 66 to 67 for those born in 1943 or afterward, depending on their specific birth year.

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

The Tier-2 payment is awarded based on the tenure of railroad service. The added benefits are similar to pensions offered in other industries. The benefit amounts to 0.7 of 1% of the result of the years of service multiplied by the worker's average monthly income in their 60 highest-earning months.

This plan is available to retirees who meet the age and service requirements of Tier-1 retirees and who worked additional months beyond the normally 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.

The spouses of retired railroad workers are also eligible for an annuity starting at age 60.

Dual Social Security and Railroad Retirement Benefits

For railroad retirees who are eligible for Social Security payments, the Tier-1 payment is reduced by the Social Security benefit or any employee railroad retirement employee annuity entitled to a survivor of the worker.

However, the Railroad Retirement Plan compensates for that reduction with what's called a "vested dual benefit." This benefit is paid in addition to the regular railroad retirement. Only retirees who qualified for dual benefits prior to 1975 and who meet other vesting requirements are eligible for this benefit.

Disability Annuity

The Railroad Retirement system offers a disability annuity on the basis of total disability or occupational disability.

Total disability means that a railroad worker has a mental or physical disability that prevents any kind of regular employment. An annuity is available if the worker faces total disability and at least 10 years of creditable railroad service. Those with five to nine years of creditable service, where at least five of those years were after 1995, may only be eligible for the Tier-I payment if they also meet Social Security earnings requirements.

An occupational disability is a condition that keeps a worker from maintaining regular railroad employment and lasts for 12 or more months. You must be at least 60 and have 10 years of railroad service or be any age and have 20 years of service to collect this annuity. You must also have a current connection with the railroad industry to receive it.

Survivor Benefit

Widows, children, and certain other dependents of deceased railroad employees are also eligible for income under the Railroad Retirement system.

The payment format is based on whether or not the employee is insured, or has a current connection with the railroad industry and at least 10 years of railroad service (five years after 1995) at the time of death. If the employee is insured, the Railroad Retirement Board pays the survivor benefit based on the age of the widower. If the employee is not insured upon their death, the benefit is transferred to the Social Security Administration, and that agency ultimately pays the survivor benefit.

Unemployment and Sickness Benefits

The Railroad Retirement system also offers income protection in the event of a job loss or temporary sickness. You'll need to earn a creditable compensation of at least $4,137.50 in 2020 to qualify for these benefits. Your payment will be based on the days of unemployment or sickness in a benefit year.

Pros and Cons of the Railroad Retirement System

Pros
  • Benefits may be transferred to the Social Security system

  • Excess Social Security payments may be refunded

  • Benefits may be passed on to spouses and heirs

  • Cost-of-living adjustments apply

Cons
  • Regulations prevent full dual benefits

  • Some pension recipients receive reduced Tier-1 benefits

Pros Explained

Advantages to this system include:

  • Railroad workers who also have been employed in other industries that pay into Social Security may have their Railroad Retirement credits, benefits, and taxes transferred to the Social Security system.
  • Retirees may also be eligible for a refund for excess payments toward Social Security. These retirees must have paid taxes into both systems while working 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.
  • Railroad retirement payments grow each year with cost-of-living adjustments.

Cons Explained

Disadvantages of the system include:

  • 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.

Is the Railroad Retirement System Worth It?

The Railroad Retirement program provides benefits to eligible railroad workers and their families that can help provide income security during retirement. The eligibility criteria are strict, and the formulas for calculating benefits are exacting, especially if you have also worked for a non-railroad employer and accrued Social Security benefits. However, the benefits are relatively generous, making them worthwhile for those who are eligible.

Although these guidelines can help you assess your expected benefit from the program, for information specific to your situation, contact the local Railroad Retirement Board field offices using the Railroad Retirement Board's field office locator.

Key Takeaways

  • The Railroad Retirement system is a comprehensive retirement benefits program for retired and disabled U.S. railroad workers and their dependents, as well as to survivors of deceased workers.
  • It is overseen by the Railroad Retirement Board and the Social Security Administration.
  • Benefits include a retirement annuity, disability, survivor benefit, and unemployment and sickness benefits.
  • Advantages include cost-of-living adjustments and the ability to pass on benefits to spouses and heirs, but some may only be eligible for reduced payments under the system.
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Article Sources

  1. U.S. Railroad Retirement Board. "Q&A: Comparison of Benefits Under Railroad Retirement and Social Security." Accessed Nov. 16, 2020.

  2. Social Security Office of Retirement and Disability Policy. "An Overview of the Railroad Retirement Program." Accessed Nov. 16, 2020.

  3. U.S. Railroad Retirement Board. "Agency Overview." Accessed Nov. 16, 2020.

  4. RRB.gov. "Informational Handbook," Pages 62–66. Accessed Nov. 16, 2020.

  5. RRB.gov. "Informational Handbook," Pages 25–28. Accessed Nov. 16, 2020.

  6. RRB.gov. "Informational Handbook," Page 22. Accessed Nov. 16, 2020.

  7. RRB.gov. "Informational Handbook," Page 71. Accessed Nov. 16, 2020.

  8. RRB.gov. "Informational Handbook," Pages 7–8. Accessed Nov. 16, 2020.

  9. RRB.gov. "Informational Handbook," Pages 39, 75–77. Accessed Nov. 16, 2020.

  10. RRB.gov. "Informational Handbook," Page 113. Accessed Nov. 16, 2020.

  11. RRB.gov. "Informational Handbook," Page 55. Accessed Nov. 16, 2020.

  12. RRB.gov. "Informational Handbook," Page 33. Accessed Nov. 16, 2020.