This is the report of the Railroad Retirement Board on you introduced on July 27, 1972. S. 3852, which The bill would provide a temporary 20 percent increase in annuities and pensions payable under the Railroad Retirement Act. The increase would be effective with respect to annuities accruing for months after August 1972 and with respect to pensions due in calendar months after September 1972, and would terminate as of June 30, 1973 the same termination date provided for the temporary 15 percent benefit increase enacted in 1970 and the temporary 10 percent increase enacted in 1971. Annuities payable under the special social security guaranty or under the spouse maximum provisions of the Act would not be increased by the bill, but these annuities have already been raised by the increases in social security benefits provided by Public Law 92-336. The table below indicates the numbers of individuals currently on the Board's beneficiary roles who would be affected by Public Law 92-336 and the numbers who would be affected by this bill. Number of cases affected by P.L. 92-336 (1972 Social 2/ Includes duplication of 26,000 spouses affected by both laws. -2 Honorable Harrison A. Williams, Jr. S. 3852 Financial Effects Since this bill is a companion bill to P.L. 92-336 (the 1972 social security amendments), the cost estimates given below consider the financial effects of that public law together with those of this bill. The figures are given on two bases: assuming (1) that the temporary 15-percent and 10-percent increases of P.L. 91-377 and P.L. 92-46, respectively, and the temporary 20-percent increase provided by this bill will be allowed to expire on June 30, 1973, and (2) that these increases will all be extended indefinitely. Public Law 92-336 provides for automatic cost-of-living adjustments in benefit amounts and in the creditable and taxable earnings base on which taxes are levied. Application of this provision in the future has not been considered in the cost estimate because of the uncertainties involved in making such adjustments. The table below shows (a) the actuarial deficiency of the railroad retirement program prior to enactment of P.L. 92-336, (b) the effects of that public law on the actuarial deficiency, (c) the costs of S. 3852, and (d) the actuarial deficiency or surplus which would result after enactment of both pieces of legislation. Figures are given both on the basis that all percentage increases will be allowed to expire on June 30, 1973, in accordance with present law and the provisions of this bill and under the condition that such increases would be made permanent. 2/ Including effects of P.L. 92-5 and P.L. 92-46 enacted in 1971. 3/ The outlay for the 10 month period from September 1, 1972 through June 30, 1973, will be $250 million and the figure in the table is the interest which the account will lose because this money will have been paid. 4/ Net effects of both bills are a surplus of $105.7 million per year if 15-percent, 10-percent and 20-percent increases of P.L. 91-377, P.L. 92-46 and this bill, respectively, are allowed to expire on June 30, 1973, or a deficiency of $167.1 million per year if the increases are not allowed to expire. Honorable Harrison A. Williams, Jr. -4 S. 3852 The actuarial surplus shown in the table above is equivalent to 1.48 percent of future taxable payroll if the temporary increases are allowed to expire. If the increases are not allowed to expire, there would be an actuarial deficiency of 6.70 percent of taxable payroll which would result in exhaustion of the funds of the railroad retirement program in a relatively short time. Views of the Board Wythe D. Quarles, Jr., the Management Member of the Board, is not in favor of enactment of this bill and takes the position that an increase of this magnitude in railroad retirement benefits, even on a temporary basis, would be irresponsible at this juncture and should not be contemplated until Congress has had an opportunity to study the report of the Commission on Railroad Retirement. Moreover, he is informed that the report will question the actuarial soundness of the retirement system so that the enactment of a 20 percent increase in benefits at this time would compound the difficulties faced by the system and make more difficult the task still to be faced of restoring its actuarial soundness. Neil P. Speirs, the Labor Member of the Board, supports the bill. He feels, however, that the increase should be made on a permanent basis. Congress has established a solid precedent over the years of increasing benefits for railroad retirement beneficiaries at about the same time that benefits are increased for beneficiaries under the Social Security Act. In all these cases benefits have been increased to meet the increased cost of living and, obviously, beneficiaries under the Railroad Retirement Act are in the same position in this respect as are beneficiaries under the Social Security Act. The report of the Commission on Railroad Retirement is, of course, in the process of being issued at the present time. In the event there is a delay in the remedial legislation which may be necessary as a result of the system's financial condition, it would be highly inequitable to deny to railroad retirement annuitants in the meantime the same percentage increases that are being extended to social security beneficiaries. The Office of Chairman of the Board is temporarily vacant by reason of Mr. Habermeyer's retirement. |