-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 Washington, D. C. 205 03 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. -2 Honorable Harrison A. Williams, Jr. S. It is the purpose of this bill to secure as much relief as possible (in the determination and adjustment of special annuities) without increasing the over-all costs of the railroad retirement system. None of the provisions contained in the bill would significantly affect the financing of the railroad retirement program. Some provisions involve costs, while others involve a savings. The net effect of these costs and savings would be for the most part offsetting. Actually, through the simplification and improvement of operations, the cost of the system would be slightly lowered. Discussion of the Bill by Sections Section 1(a) The new clause (vi) of Section 3(e). For the purpose of determining the amount of a special annuity, the Board is now required to take into account all individuals who would be entitled to benefits under the Social Security Act had railroad service been creditable under that Act. Many of these individuals (such as divorced wives, or divorced or remarried widows) are not entitled to annuities under the Railroad Retire_ment Act. Consequently, the Board has no information about them, or of their whereabouts, and the effort to secure such information entails many administrative problems. To afford relief in this respect, the new clause (vi) of Section 3 (e) provides that, for the purpose of determining eligibility for, and the amount of, the special annuity, the Board need take into account only those individuals in the annuitants' families who could qualify for annuities under the Railroad Retirement Act, or who are the annuitants' wives or children. The new clause (vii) of Section 3 (e). In cases being paid as regular annuities, problems arise when social security benefits are increased. In such cases, the Board is required to ascertain whether the social security increase would result in a transfer of the annuity from the regu lar formula to the special one. To do this, the Board must determine if the annuitant has qualified dependents (such as minor, disabled or studen children) who are not entitled to benefits under the Railroad Retirement Act while the annuitant is alive but who could be included in the computation of the special annuity. This requires the Board to send out questionnaires to get information about the annuitant's family composition at the time of each amendment to the Social Security Act. It is estimated that of about 300,000 such questionnaires which would have to be sent out to regular annuitants, only a small number (less than 2,000) would have such dependents. To relieve the Board of the necessity of -3 Honorable Harrison A. Williams, Jr. S. sending out questionnaires, the new clause (vii) of Section 3 (e) authorizes the Board to include only members of the family on the Board's benefit rolls, or those included in the special annuity at the time of such social security increase, for the purpose of determining eligibility for, and the amount of, a special annuity because of the increase. This provision would be used only in cases where the special annuity could have applied but it had previously been determined that the regular annuity produced a higher benefit. This would not preclude the transfer of a regular annuity to a special one in cases where, for example, the annuitant marries and the sum of his and his wife's annuities is less than required by the special formula; or where the annuitant, who is awarded a reduced regular annuity, attains age 62; or where a disability annuity is awarded under the regular formula solely because the six-month waiting period required by the Social Security Act for eligibility for disability benefits under that Act had not yet expired at the time the annuity was awarded. In the case last described, the regular annuity would be changed to a special one upon the expiration of the waiting period. The new clause (viii) of Section 3 (e). In computing a special annuity under present law, the Board is required to take into account not only social security benefits, if any, to which an individual is entitled, but also potential social security benefits to which the individual would have been entitled had he applied for them. In the vast majority of cases, however, involving a potential social security benefit, the individual did not file for such benefit either because he did not know he was entitled to it, or because he preferred to wait till he attains age 65 when he would qualify for an unreduced benefit instead of a reduced benefit between the ages of 62 and 65. Under present law, however, the individual is charged with receiving a benefit for which he did not even apply. The inevitable result of this is that very few individuals qualify for the special annuity. The new clause (viii) of Section 3 (e) would relieve the Board of computing social security benefits that would have been paid under the Social Security Act if the beneficiary had applied for them; it provides that, in determining the applicability of the special formula for computing an annuity, the Board should take into account only such social security benefits to which an individual is actually entitled. The new clauses (ix) and (x) of Section 3 (e). Under clause (ix), an annuitant's average monthly wage would include only his wages and selfemployment income through the year before his annuity began to accrue, and railroad compensation up to the date his annuity began to accrue. -4 Honorable Harrison A. Williams, Jr. S. Presently, when computing the average monthly wage for the special annuity formula, the Board is required under the Social Security Act provisions to include only wages and compensation up to the year the employee retires in the initial computation. Any wages he may have earned in the year he retires and his compensation in that year cannot be used until later in a second computation. Any resulting increase is effective in January of the following year. This is so because, generally, the records of current wages are not immediately available. Since the employee's compensation in the year he retired is available when the annuity is finally certified, the Board could include this compensation in the original computation of the special annuity but is prevented from doing this because of the provision in the Social Security Act. Also for the purpose of the second computation, the Board obtains the current wage record from the Social Security Administration after they have been posted to their tape records. The added social security earnings generally result in no increase. It is a rare case where taking the latest social security earnings into account will permit the transfer of the regular annuity to a special one. To meet this problem the new clauses (ix) and (x) of Section 3 (e) provide for the inclusion, in new award cases, of an individual's wages and self-employment income only through the year before his annuity began to accrue. All creditable railroad compensation would be counted up to the date the employee's annuity began. The effect of these would be to reduce the number of computations from two to one. For annuitants on the rolls, social security wages and self-employment income would be used through the end of 1971. In both situations, the average monthly wage and the resulting primary insurance amount would remain fixed, eliminating the need to obtain earnings from the Social Security Administration after the employee retired. The primary insurance amount would, of course, be increased by any costof-living or other increases provided by social security amendments. In survivor cases, there would be no change--the primary insurance amount will continue to be based on wages and compensation through the year of death. The new clause (ix) would serve another purpose if H.R. 1 (92d Congress, 1st Session) were enacted. Under section 110 of H.R. 1, a working married couple, each of whom had at least 20 years of covered service after marriage, could have their creditable earnings combined. If they elect to have their earnings combined, each member would receive a benefit equal to 75 percent of the primary insurance amount. The provision would be an alternative to present law and would apply only if higher payments would result. The combination of husband's and wife's earnings is intended primarily to benefit persons with very low earnings, and would benefit very few railroad employees. Even though this provision |