-2 S. 3852 Honorable Harrison A. Williams, Jr. 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. 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. Не 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. -5 Honorable Harrison A. Williams, Jr. S. 3852 Due to the fact that hearings on S. 3852 have been scheduled for Wednesday, August 9, 1972, the Board is submitting this report without having had an opportunity to obtain the views of the Office of Management and Budget. Sincerely yours, CC: Honorable Caspar W. Weinberger FOR THE BOARD R. F. Butler, Secretary Director, Office of Management and Budget UNITED STATES OF AMERICA 844 RUSH STREET CHICAGO, ILLINOIS 60611 August 4, 1972 Honorable Harrison A. Williams, Jr. Chairman, Committee on Labor and Public Welfare United States Senate Dear Mr. Chairman: This is the report of the Railroad Retirement Board on S. (H.R. 15922 for identification), which was referred to the Senate Committee on Labor and Public Welfare for consideration. For the reasons stated below, the Board favors the bill and hopes for its early enactment. Annuities under the Railroad Retirement Act are often computed under a special formula provided in Section 3 (e) of the Act. This formula guarantees that the combined amounts for which an individual, and those deriving from him, are eligible under the Railroad Retirement Act and the Social Security Act on the basis of the individual's earnings record would be no less than 110 percent of the amount which would have been payable to that family under the Social Security Act on the basis of the individual's combined railroad and nonrailroad earnings if his railroad earnings had been covered under that Act since January 1, 1937. (For the purposes of this report, an annuity, computed under this special formula, will be referred to as a "special annuity", and an annuity, computed under the regular formula, will be referred to as a "regular annuity".) Generally, a special annuity is increased anytime social security benefits are increased because, otherwise, the annuity would be less than required by the special formula. Further, the eligibility conditions for a special annuity are affected by any change in the eligibility conditions for social security benefits. Consequently, adjustments have to be made in special annuities each time the Social Security Act is amended. These adjustments have become more and more complicated with each amendment to the Act since 1965. |