The Railroad Retirement System is a national benefit program for U.S. railroad workers and certain family members. The structure and benefits of this unique system can allow you to plan for security in retirement.
What Is the Railroad Retirement System?
The Railroad Retirement System (RRS) offers monthly benefits to retired and disabled railroad workers and their dependents. It also provides benefits to survivors of deceased workers. It offers income protection to railroad workers in retirement, due to disability or sickness, or unemployment.
- Alternate name: Railroad Retirement Program
How the Railroad Retirement System Works
Railroad workers don't pay into in the Social Security system. They instead pay higher taxes than most workers who do pay into Social Security. Those taxes are sent to the RRS under the Railroad Retirement Act (RRA). They're used to fund basic retirement benefits for railroad workers. They also fund an investment trust that earns returns for the pension fund.
Congress first created the RRS in the 1930s to address doubt that pension programs could provide railroad workers with income aid as they aged. The program added unemployment benefits in 1938 under the Railroad Unemployment Insurance Act. Changes in 1946 expanded the system's scope to include survivor, sickness, and disability benefits. Spousal benefits were added in 1951.
The system works parallel to the Social Security Administration (SSA). It's overseen by the administration and the Railroad Retirement Board (RRB). The SSA collects taxes to fund the program. The RRB is tasked with distributing benefits to railroad workers and their family members.
These two governing bodies cooperate in determining a person's benefits. A third body, the National Railroad Retirement Investment Trust, invests excess funds. It uses the returns to pay for additional retirement pensions.
Benefits of the RRS
Key benefits offered under the Railroad Retirement program include retirement, disability, and survivors' annuities, as well as unemployment and sickness benefits.
Retirement Annuity: Tier 1
The RRS offers two tiers of payment. Tier 1 is basic retirement payments. Tier 2 awards extra 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 it uses Railroad Retirement ages and service periods.
A worker's creditable earnings are adjusted to account for ups and downs in lifetime earnings to arrive at the payment. The adjusted earnings are used to figure the worker's indexed monthly earnings. The total Tier 1 payment amounts were 90% of the first $960 of indexed monthly earnings in 2020, plus 32% of the earnings over $960, plus 15% of the earnings over $5,785.
This plan is open to retirees who have at least 10 years of service for a covered employer under the RRA, 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 after, based on their birth year.
Retirees can earn credits for up to 12 service months in a calendar year.
Retirement Annuity: Tier 2
The Tier 2 payment is awarded based on the tenure of railroad service. The added benefits are much the same as pensions offered in other fields. It amounts to 0.7% of 1% of the result of the years of service times the worker's average monthly income in their 60 highest-earning months.
This plan is open to retirees who meet the age and service requirements of Tier 1 retirees. They must have worked extra months beyond the normal contracted months of a salaried railroad job. Tier 2 is also open to retirees who maintain a current connection to the railroad industry. Rules include working for at least 12 months in the last 30 months prior to making a claim.
The spouses of retired railroad workers are eligible for an annuity starting at age 60.
Dual Social Security and Railroad Retirement Benefits
The Tier 1 payment is reduced by the Social Security benefit for railroad retirees who are eligible for Social Security payments, or for any railroad retirement worker annuity for a survivor of the worker.
The Railroad Retirement Plan compensates for this with what's called a "vested dual benefit." This benefit is paid over and above the regular railroad retirement. Only retirees who qualified for dual benefits prior to 1975 and who meet other vesting rules are eligible for this benefit.
The RRS 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 has at least 10 years of creditable railroad service. Those with five to nine years of 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 one that prevents a worker from maintaining regular railroad work and that lasts for 12 months or more. You must be at least 60 years old and have 10 years of railroad service, or be any age and have 20 years of service. You must also have a current connection to the railroad industry.
Widows, children, and certain other dependents of deceased railroad workers are also eligible for income under the RRS. The payment format is based on whether the worker is insured, or has a current connection with the railroad industry and at least 10 years of railroad service (or five years after 1995) at the time of death.
The RRB pays the benefit based on the age of the widower if the worker is insured. The benefit is transferred to the SSA if the worker is not insured at the time of their death. The SSA will pay the survivor benefit.
Unemployment and Sickness Benefits
The RRS also offers income protection in the event of job loss or temporary sickness. You must earn creditable compensation of at least $4,137.50 in 2020 to qualify. Your payment will be based on the days of unemployment or sickness in a benefit year.
Pros and Cons of the Railroad Retirement System
Benefits may be transferred to the Social Security system.
Excess Social Security payments may be refunded.
May be passed on to spouses and heirs.
Cost-of-living adjustments apply.
Rules prevent full dual benefits.
Some pension recipients receive reduced Tier 1 benefits.
Advantages to this system include:
- Railroad workers who have also been employed in other fields 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 of excess payments they made 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. The individual must have worked in the railroad industry at the time of retirement or death in order for family members to qualify.
- Railroad retirement payments grow each year with cost-of-living adjustments.
Disadvantages of the system include:
- Government rules 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 often not more than half the other pension.
Is the Railroad Retirement System Worth It?
The RRS provides benefits to railroad workers and their families that can help provide income during retirement. But the rules are strict. The formulas for calculating benefits are exacting, especially if you have also worked for a non-railroad employer and accrued Social Security benefits. But the benefits are generous, making them worth it.
These guidelines can help you assess your expected benefit from the program. You can contact the local Railroad Retirement Board field offices using their field office locator for information specific to you.
- The Railroad Retirement system is a benefits program for retired and disabled U.S. railroad workers and their dependents, as well as survivors of deceased workers.
- The RRS 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.