What is the history on the Rail road retirement benefit?

[jp2153]

I have just retired from 20 years of Military service and at the ripe young age of 41 began to enjoy my pension. I recently went to a recruiting seminar for employment with CSX. One of the things that was touted at the briefing was the Railroad retirement.

I did some research and was astounded by the benefits that are given for railroad service and the spouse compared to a military pension.

What is the significant history behind this benefit? Was this done to compensate families for being used by earlier railroad tycoons? 

BTW, I got the class date and hope to continue on with the rich tradition that is before me!

[Limitedclear]

Check out the Board website at www.rrb.gov

LC

[al-in-chgo]

 

Before you get your hopes too high, remember that FDR set up RRB in the 1930's as a kind of pilot for Social Security, which came on line about a year later.  Since then the systems have been separate.  In other words, by working at CSX you'll acquire RRB credits but not Social Security credits.  But RRB pays a tad better in its pensions; also railroad and non-railroad credits can be combined. 

When I worked for Social Security in a small Appalachian town, lots of applicants had plenty of SS credits but also some "railroad exposure," which would cover such jobs as working for a railroad-owned coal company.  We had it easy:  if there was railroad involvement, we shipped the case to Chicago and they did all the processing work.  It may take a little longer than a similar SS claim, but in the end the retiree receives a little more money, as a rule.

 

[arbfbe]

Think of two pensions rolled into one and administered by the federal government.  One portion of RRB is the equivalent of SSI.  The second and larger part is the company pension but in this case it is an industry pension.  So long as you stay within the industry, you can change employers and still keep your pension benefits accruing.  If you leave the industry, in most circumstances, you will lose your industry part of the pension.  You may have contributed a lot of money to it but you will not be able to collect any of it unless you are able to reacquire an industry connection at the time of retirement.  The SSI equivalent part of it will transfer to SSI when you retire.

You get vested in 5 yrs, get a lot more benefits after 20 yrs and have your full pension locked in after 30 yrs, though in your case you will have to retire at 70 and will not make the full 30 yrs.  If you work until 65 then you will make the 20 yrs and be well covered.

Good luck and best wishes.    

[jeaton]

I draw railroad retirement from about 15 years working for railroads up until 1975.  I was also vested for Social Security benefits, but I took the railroad benefit as it was higher than SSI. I don't know if the program is different for current employees, but here is how it works for me.  My benefits are paid through the Railroad Retirement Board and are reported as a two tier benefit.  Tier 1 is the SSI equilevant, that is, I am receiving an amount equal to the SSI benefits I would have received if I had worked for a non-railroad entity for just those 15 years.  I also receive a Tier 2 benefit that that is the industry pension benefit program.  That program receives funding from the portion of the RRB withholding that exceeds withholding for Social Security Benefits.  I believe that for a 20 to 30 year veteran with railroad employment right up to retirement will receive a Tier 2 payment grester than Tier 1. 

On the federal level Tier 1 is taxed the same as Social Security with no more than 85% counted as taxable income.  By federal law, no states may make Tier 1 any railroad retirement benefits subject to state income tax.  Tier 2 is taxed in the same manner as any other pension income.

And, you can get the entire story at  http://www.rrb.gov/mep/ben_info.asp#service 

[bobwilcox]

  Tier 2 is taxed in the same manner as any other pension income.

And, you can get the entire story at  http://www.rrb.gov/mep/ben_info.asp#service 

 

Tier II is not taxed by VA.  I would think other states also exclude Tier II. 

[jeaton]

  Tier 2 is taxed in the same manner as any other pension income.

And, you can get the entire story at  http://www.rrb.gov/mep/ben_info.asp#service 

 

Tier II is not taxed by VA.  I would think other states also exclude Tier II. 

Many and perhaps most states exempt income from pensions for tax purposes.  Wisconsin doesn't.  Kind of foolish actually.  Wealthier on pensions make the place in Florida or Texas the permanent residence.  Mid wealth folks actually move somewhere else.  Those only drawing SSI or have no more than modest other income stay, because income may not get to taxable levels.  Nicely skews the senior population in the state toward those that require more help from the state from social programs such as Medical Assistance.

When the wife and I decide to close our business maybe a few years down the road, we will join the middle group exodus.  We'll be in touch about life in VA.

[nbrodar]

Don't forget the much better spouse and survivor benefits under RRR.   Your spouse will get 50% of benefit while you are alive (in effect a married couple will get 150% benefit). Then after you die, he/she will continue to get 100% of your benefit, but not his/her 50%.  Anyone know how SSI handles this?

The key to getting the best benefit is to have 30 (actually 360 months) years of service and 60 years of age.  Working past 30 years (at least currently) has little impact on your benefit.  So you want to retire as soon after having 30 of service as possible. 

Me, I'll have 40 years of service before I'm 60.   Don't get between me and the door in April of 2038. I'm hoping we can get 30 years and out.

You also must have 5 year of railroad service to be vested in Tier II.  This is important, because the Tier II benefit is double or triple the Tier I benefit.  Also if you don't make it 5 years any Tier II contributions you make are lost.  You will not get them back. 

Also for current railroad employees, any time you spend in the military - while employed with a railroad - counts toward your railroad retirement service months.  Time spent furloughed does not count.  One day worked in a month, makes that a credited month.

Nick

[bobwilcox]

We'll be in touch about life in VA.

Central VA is great.  We live near a small college town, UVA, and three hours from DC.  Unlike the midwest the weather will not kill you. 

[wjstix]

Oddly enough I was just working on this stuff now...I'm updating (and putting 'online') the manual for our state Taxpayer Assistance unit !!

One reasons behind the RRB pensions being set up was the "boomer factor" - so many railroaders worked for several railroads over their careers and wouldn't be in one place long enough to qualify for a pension. Another was age - at the time the law took effect, there was a fairly high percentage (I forget the exact number) of engineers still working in their seventies and eighties. The federal government wanted to encourage them to retire (largely due to safety concerns) - and most all of them did retire when the RRB came in to effect.

<> As far as taxability...as was noted, there are two parts, one part is like a 'regular' pension and  one part is like social security. The social security part generally is not taxable by the federal or state governments. (If someone has a large amount of Soc Sec / RRB benefits or other income part of it can be taxable, but for most people it isn't). For the 'regular' pension part, federal law prohibits the state's from taxing it, so like here in Minnesota where we start with your Federal Taxable Income on the state tax return, the RRB benefits have to be subtracted out of income before calculating the tax you owe.

http://www.rrb.gov/PandS/tax/tax_faqs.asp  

[bnsfncoal]

My Dad worked for BN for 35 years and passed seven years ago, mom's benefit of dad's RR is better than her SS would be. Her only complaint is for the past three years it has gotten smaller each year. They had other money in addition to RRB but he was sick for two years and....I'm sure you've heard the story. She is very grateful for the railroad and how they have taken care of them over the years.

Guy

[jp2153]

So, when I retire from the railroad, my current wife of 21 years will at the end of my 20 plus years of railroad service receives a check also?

So for instance I would get check for about 3,000 and she would get a check for 1,500 also? I have to pay into the survivor benefit plan so my wife can get 50% of my retirement check when I "KICK THE BUCKET".

I am glad that I chose the right profession. There have been 3 things that I have always wanted to do in my life. 1. Astronaut 2. Soldier 3. Engineer. I guess 2 out of three ain't bad. 

[nbrodar]

So for instance I would get check for about 3,000 and she would get a check for 1,500 also? I have to pay into the survivor benefit plan so my wife can get 50% of my retirement check when I "KICK THE BUCKET".

As long as you live you will get $3,000, she will get $1,500.   When you die, she will get your $3,000, but not her $1,500.  You pay nothing extra for this benefit.

Nick

[mackb4]

As mentioned the key is 30/60 on r.r. retirement.But if you can't get the 30 in a resonable amount of time after turning 60,you will draw less factored by your millitary/railroad time. If you retire at 60 with the 30 years,and your wife is younger,she doesn't collect her half until she tuns 60.But her insurance is still much cheaper than if you was to get it on your own.Then at age 65 you will fall under medicare,with the option of the additional insurance. My Dad is 64 so it doesn't effect him yet.But my Mother is 68 and she pays the additional insurance besides the medicare.Still a much better deal if you was only on medicare. And you can pay out of the tiers ,if you can make that much.Meaning if you pay the maximum amount for tier 1-6.2 % of $94,200/year, tier 1 medicare - 1.45% of all earnings ,and tier 2-4.4% of $69,900/year. Which all this means is,if you pay out of these in the calander year,you don't pay it any longer in that year.Most people pay out of the tier 2 , few will pay out of the tier 1-6.2% of the $92,200.Because you have to earn that much to pay those two off. As far as when r.r. retirement started,I think it started in 1937.That was when my Granddad got his s.s. number.At least that's what the s.s. office told me.He never got to collect a dime from r.r.retirement cause he died in 1965 at the age of 69.He had worked 53 years on the railroad.But with my Grandmother being 20 years younger than him,she never drew a penny until she turned 62,which was the age set by the r.r.retirement board at that time.She worked for the state of Ky. and collected both half of my Granddads retirement,and her state pension. And there is another little part of r.r.retirement to understand,is what type of job your spouse had worked,reflects to what she will draw.My Mother didn't work while my Dad did,so she collects the full half of what my Dad gets.But certain jobs effects this and others don't.It gets to complicated for me to understand. If I'm wrong about any of this,somebody will correct me.But that's what I know from what I've seen.Hope this helps.

[Kevin C. Smith]

We'll be in touch about life in VA.

Central VA is great.  We live near a small college town, UVA, and three hours from DC.  Unlike the midwest the weather will not kill you. 

Ahh, a little twenty below just keeps down the riff-raff...LOL!

Seriously, I've only had occasion to get out east once and I was quite impressed with the beauty of the Appalachians (going through in October helped, I'm sure). I have a couple of friends that vacation in North Carolina every year and swear by it as God's own country. Still, "there's no place like home".

[jeaton]

I have amended my original post on taxation of the benefits, based on a little further research.  For federal the Social Security equivalent benefit from Tier 1 is treated the same as Social Security benefits.  If one-half of that benefit plus all other income equal $25,000 for single persons or $32,000 for married filing jointly a portion of the benefit will be taxable income.  As the total income increases the percentage of taxable railroad retirement will increase to a maximum of 85% of the total benefit.  The Tier 2 benefit and any other amount over the Social Security Equivalent is taxed in the same manner as a qualified employee plan.  The year-end 1099's provided by the Railroad Retirement Board separately identifies the two categories of income.  From that point, it is on to IRS Forms and worksheets to figure the amount that is taxable income.

To correct my previous statement, by the Railroad Reitrement Act none of the railroad pension may be subject to state income taxes.

I prepare tax returns for a fee, so I have to add a disclaimer.  My comments are for general information and should not be relied on as specific advise as applicable to any individual person.  (Also, this is not an offer to provide tax service to any forum members.  In fact, I am not accepting new clients for my business.)

As far as benefit levels go for either the employee or a spouse, I am not even going to try that. There is a lot of information at http://www.rrb.gov including where to call after you get a headache trying to figure it out. 

By the way, the Retirement Board offices are very good at providing records and benefit estimates for present and former railroad employees.  When I started looking into retirement income, it had been more than 25 years since my last railroad employment.  When I called, they asked for name and number, pulled up my records and gave me the numbers in about two minutes.  (Try that with Social Security.)

[jeaton]

We'll be in touch about life in VA.

Central VA is great.  We live near a small college town, UVA, and three hours from DC.  Unlike the midwest the weather will not kill you. 

Ahh, a little twenty below just keeps down the riff-raff...LOL!

Seriously, I've only had occasion to get out east once and I was quite impressed with the beauty of the Appalachians (going through in October helped, I'm sure). I have a couple of friends that vacation in North Carolina every year and swear by it as God's own country. Still, "there's no place like home".

Kevin, It might also be said that twenty below also keeps the sane people out.

[CNW534]

My dad started working for the C&NW in 1952 and retired in 1994.  Dad and mom were masters at playing the railroad retirement game.  I have fond childhood memories of their all-night pension planning sessions.  Several times, I awoke at 3 AM to find them sitting in a fully-lit living room with railroad paperwork spread across the floor.

Dad met all the requirements necessary to qualify for "dual benefits" upon retirement.  IIRC, he receives monthly retirement payments from railroad retirement AND Social Security.  In addition, mom receives a monthly payment equal to half of what dad gets from railroad retirement.

To this day, dad says he got screwed in 1974.  I assume he's referring to the Railroad Retirement Act of 1974, which changed the dual benefit rules for future retirees.

Mark