April 17, 2014

Don’t let them fool you about Railroad Retirement

An opinion article recently published by the Financial Times and Fox News, written by conservative financial columnist Liz Peek, takes a nasty and incorrect swipe at Railroad Retirement, saying Railroad Retirement should be eliminated and folded into Social Security.

The argument begins with a major falsehood — that Railroad Retirement is costing the American taxpayer.

In fact, Railroad Retirement costs the American taxpayer not a single penny.

Not only are all Railroad Retirement benefits paid from payroll taxes of railroads and their workers, but so is the overhead operation of the Railroad Retirement Board.

Scrapping Railroad Retirement and folding it into Social Security wouldn’t save the federal government or the American taxpayer a single penny. But shutting it down would ravage the retirement security of some 600,000 current railroad retirees and their families, as well as future railroad retirees and their families.

The truth is:

  • The Railroad Retirement Tier I benefit is roughly equivalent to Social Security benefits.

Railroads and their employees each pay the same 6.2 percent payroll tax as employers and employees covered by Social Security. In what is strictly an accounting transfer, Railroad Retirement payroll taxes are transferred by the Railroad Retirement Board to the Social Security Administration, and then Social Security returns the equivalent Social Security benefits due railroad retirees to the Railroad Retirement Board. It is strictly an accounting transfer.

Although Tier I does provide benefits beyond what is paid by Social Security — such as early retirement and occupational disability — those additional Tier I benefits are paid entirely out of the Railroad Retirement Trust Fund — maintained entirely by railroads and their employees through payroll taxes.

  • The Railroad Retirement Tier II benefit, which is equivalent to a defined benefit private pension, is fully funded by additional payroll taxes paid solely by railroads and their employees — 3.9 percent by employees and 12.1 percent by railroads.
  • If the Railroad Retirement Trust Fund faces a shortfall, railroads are on the hook for higher payroll taxes — not the American taxpayer. That’s the law.

Railroad Retirement was created before there was Social Security, and has remained separate from Social Security, but is funded fully by railroads and their employees.

Although Congress sets the payroll tax rates and benefit levels, it does so in collaboration with railroads and rail labor — and not a penny of general tax revenue has been or is used for Railroad Retirement.

The unwarranted, unsubstantiated and unjust attack on Railroad Retirement by right-wing extremists is as phony as claiming that elimination of public-employee collective bargaining rights will solve state financial problems.

The mean-spirited attack on Railroad Retirement is part of a more broad effort to weaken and destroy organized labor.