The
following describes railroad retirement annuity formula components
as applied to new awards. The cost-of-living adjustments applied
to annuities are described in previous
pages of this publication.
Employee
Retirement Annuity
The amount of a regular annuity is
the total of portions which are computed separately under
different formulas and called tiers, plus any vested dual
benefit payment also due.
Tier I
The first tier is calculated in generally
the same way as a social security benefit. Any nonrailroad
social security credits of an employee are combined with his
or her railroad retirement credits for tier I computation
purposes.
In computing tier I, an employee's
creditable earnings are adjusted to take into account the
changes in wage levels over a worker's lifetime. This procedure,
called indexing, increases creditable earnings from past years
to reflect average national wage levels just prior to the
employee's first year of eligibility. The adjusted earnings
are used to calculate “average indexed monthly earnings,”
and a formula is applied to determine the gross tier I amount.
For those first eligible in 2004, the gross tier I is equal
to:
- 90% of the first $612 of average
indexed monthly earnings, plus
- 32%
of the amount of these earnings over $612 up to $3,689,
plus
- 15%
of these earnings in excess of $3,689.
For employees with less than 10
years of railroad service, tier I benefits are calculated only
if the employee has at least 5 years of service after 1995 and
an “insured status” under Social Security Act
rules (usually 40 quarters of coverage), counting both railroad
retirement and social security covered earnings.
Delayed
retirement credits.--Tier I benefits are increased
for each month an employee delays retirement past full retirement
age up until age 70. For those who attain full retirement
age on January 1, 2004, or later with a date of birth January
2, 1939, through January 1, 1941, the delayed retirement credit
is 7/12 of 1% per month.
For those who attain full retirement age in later years, the
delayed retirement credit gradually increases every other
year until it becomes 8% per year beginning in 2008 (earned
in 2008 but payable effective 2009).
Age
reductions.--For employees retiring between age 62
and full retirement age with less than 30 years of service,
age reductions are applied separately to the components of
an annuity. The tier I reduction is 1/180 for each of the
first 36 months the employee is under full retirement age
when his or her annuity begins and 1/240 for each additional
month. As mentioned earlier, the full retirement age is gradually
rising from 65 to 67, depending on the year of birth (see Table
4). The maximum annuity reduction for retirement at age
62 is gradually increasing from 20% to 30%.
The full retirement age for employee and spouse benefits increases
from 65 to 66 and from 66 to 67 at the rate of two months
per year over two separate six-year periods. These changes
also affect how reduced benefits are computed for early retirement.
The increase in full retirement age from age 65 to age 66
affects those people who were born in the years 1938 through
1942. The full retirement age will remain at age 66 for people
born in the years 1943 through 1954. The increase in full
retirement age from age 66 to age 67 affects those who were
born in the years 1955 through 1959. For people who were born
in 1960 or later the full retirement age will be age 67.
Reduced benefits continue to be available
but at greater reductions. The early retirement reduction factor for
an employee is 1/180 for each of the first 36 months of the reduction period regardless
of the age of initial entitlement and decreases to 1/240 for
each month (if any) over 36, as mentioned earlier. This will
result in a gradual increase in the reduction at age 62 to
30% for an employee once the age 67 retirement age is in effect.
Age reductions are required in the
tier I annuity amounts of 30-year employees who retired at
ages 60-61 before 2002 and attained age 60 or completed 30
years of service after June 1984. The age reductions are applied
only to the tier
I annuity portion. If an employee affected by this provision
was born before 1938 and attained 60/30 eligibility after
December 1985, tier I is permanently reduced by approximately
20%. For those born after 1937 who retired before 2002, the
reduction gradually increased as described earlier. In both
cases, the tier I amount is frozen until the first month throughout
which the employee is age 62. It is then recomputed to reflect
interim increases in national wage levels and will become
subject to future cost-of-living increases. There is no
reduction if the employee retired at age 62 or older with 30 years
of service, or at age 60 with 30 years of service and retirement
is after 2001.
(See Table
4 in IB-2 Facts for more information.)
Workers’
compensation or public disability benefit reductions.--For
employees who are under age 65 and receiving a disability
annuity, the tier I amount is, under certain circumstances,
reduced for receipt of workers’ compensation or public disability
benefits.
Social
security reductions.--After any required age reduction,
the tier I amount is reduced
by the amount of any social security benefits also
payable but not to an amount below zero.
Reductions
for public, non-profit or foreign pensions.--For employees
who attain eligibility for both
tier I benefits and certain
government pension or other payments after 1985, a
reduction may be required for receipt of a public pension
based, in part or in whole, on employment not covered by railroad
retirement or social security after 1956. This also applies
to payments from a non-profit organization or from certain
foreign governments or employers. Usually,
an employee’s tier I benefit will not be reduced by more than
1/2 of his or her pension from noncovered employment. However,
if the employee is under age 65 and is receiving a disability
annuity, the tier I benefit may be reduced by an additional
amount if the pension from noncovered employment is a public
disability benefit.
Tier II
The second tier of a regular annuity
is computed under a separate formula, and is based on railroad
service alone. Tier II benefits are equal to seven-tenths
of 1 percent of the product which is obtained by multiplying
an individual’s years of service by such individual’s average
monthly compensation using the tier II tax base in the 60
months of highest earnings. The tier II component is reduced
by 25% of any gross employee vested dual benefit amount due.
Age
reductions required for those employees retiring between
age 62 and full retirement age with less than 30 years of
service are also applied to the tier II component of an annuity.
The reduction is 1/180 for each of the first 36 months the
employee is under full retirement age when his or her annuity
begins and 1/240 for each additional month.
Full retirement age is gradually rising
as mentioned earlier. However, if an employee had any creditable
railroad service before August 12, 1983, the retirement age
for tier II purposes will remain 65.
Employees with 5-9 years of creditable
service, if at least 5 years were after 1995, are eligible for tier II benefits the first
full month they are age 62. Their tier II benefits are subject
to the same age reductions that apply to employees with 10
to 29 years of service. If they are eligible on the basis
of total disability, a tier II benefit is not payable until
age 62 and that amount is reduced for early retirement.
Amount of Vested Dual Benefit
Payment
To determine this additional annuity
amount for a retired employee meeting the vesting requirements,
the Railroad Retirement Board computes a social security benefit
based solely on the individual’s railroad service before 1975,
and a social security benefit based solely on social security
covered earnings before 1975. The vested dual benefit is the
amount by which the total of these two computations exceeds
a social security benefit based on combined railroad and social
security covered earnings before 1975.
The vested dual benefit is increased
by the cumulative cost-of-living percentage increases applicable
to tier I benefits that occurred between January 1, 1975,
and the date of retirement or January 1, 1982, whichever
was earlier. The computed amount is then frozen; that is,
no further cost-of-living increases are applied thereafter.
The amount of any vested dual benefit due is added to the
tier portions and paid as part of the regular annuity.
The same age reduction applied to
the tier I component is applied to the vested dual benefit
component of an annuity for those employees retiring before
full retirement age with less than 30 years of service.
Supplemental Annuity Formula
The amount of a supplemental annuity
awarded after 1974 is equal to $23 plus $4 for each year of
service over 25, up to a maximum of $43. A fraction of $4
is added for each fractional year of service.
If a retired employee also receives
a private pension paid for entirely or in part by a railroad,
the supplemental annuity is subject to reduction. The reduction
is equal to the amount of the pension paid for by the employer.
If the employer reduces the private pension because of the
supplemental annuity, the amount of the reduction is restored
to the supplemental annuity but does not raise it over the
$43 maximum. There is no reduction in the supplemental annuity
for any part of a private pension paid for by the employee
alone nor is there a reduction for a pension paid by a railroad
labor organization.
Spouse
Annuity
The spouse annuity formula is based
on certain percentages of the employee’s tier I and tier II
amounts.
Tier I
The tier I portion of a spouse annuity
is 1/2 of the employee's tier I amount after any reduction
for the employee's noncovered service pension but before
any reduction in the employee's annuity for early retirement
or entitlement to a social security benefit.
Spouse
age reductions.--Age reductions required for those
spouses between age 62 and full retirement age of employees
retiring with less than 30 years of service are applied separately
to each annuity component. Full retirement age for a spouse
is gradually rising, just as for an employee. Actuarially
reduced benefits continue to be available but at greater reductions.
The tier I reduction is 1/144 for each of the first 36 months
the spouse is under full retirement age when her or his annuity
begins and will decrease to 1/240 for each month (if any)
over 36. This will result in a gradual increase in the reduction
at age 62 from 25% to 35% for a spouse once the age 67 retirement
age is in effect.
December 2001 legislation eliminated
the tier I age reduction for employees ages 60 or 61 with
30 or more years of service whose railroad retirement annuities begin
January 1, 2002, or later. The spouses of these employees
are also eligible for full annuities at age 60.
Age reductions required for spouses
of employees with 30 years of service who attained 60/30 eligibility
after June 1984 but whose annuities began before January
2002 are applied only to the tier I portion of
the spouse annuity. If the employee attained 60/30 eligibility
before July 1984, retired at age 62 with 30 years of service
or begins receiving an annuity at ages 60 or 61 after 2001 with 30 years of service,
the spouse tier I portion is not
subject to these reductions.
If the employee’s annuity is subject
to 60/30 age reductions, the spouse of such an employee may receive a reduced tier I benefit, even if the spouse does
not retire until age 62.
In reduced 60/30 spouse cases, the
tier I benefit is equal to 1/2 of the employee's reduced tier
I on the employee’s annuity beginning date and is also frozen
until the first full month throughout
which both the employee and spouse are age 62. Then
it is recomputed based on 1/2 of the employee's gross
tier I amount and reduced for each month the spouse is under
full retirement age at that time. If at the time of recomputation
the spouse is already at full retirement age, or the spouse
has a minor or disabled child in care, no age reduction would
apply.
The spouse of a disability annuitant
who is otherwise eligible for a 60/30 age annuity receives
an age reduction if the spouse's annuity beginning date was
before 2002. If the spouse's annuity beginning date is January
1, 2002, or later, the spouse can receive an unreduced annuity
as early as age 60. If the spouse is entitled based on having
a minor or disabled child in care, there is no age reduction.
Reductions
for other benefits.--After any applicable age reduction required
for the spouse’s early retirement, the spouse tier I amount
is reduced by the amount of any
social security benefit to which the spouse is entitled.
The tier I amount may also
be reduced for certain Federal, State or local government
pension payments based on the spouse's own earnings.
For spouses subject to the public pension reduction, the tier
I reduction is equal to 2/3 of the public pension.
The spouse tier I amount may also
be reduced if the employee under age 65 is receiving a disability
annuity and a workers’ compensation or public disability benefit.
Divorced
spouse.--The annuity of a divorced spouse is limited
to the tier I amount and thus equal to what social security
would pay.
Tier II
The second tier amount is 45% of the
employee's tier II amount before any age reductions. If the employee is awarded a vested
dual benefit, the employee tier II amount used in computing
the spouse benefit is the amount after the 25% reduction for
the employee's vested dual benefit entitlement.
Age reductions.--As
mentioned earlier, age reductions are gradually increasing.
The tier II age reduction for spouses of employees retiring
with less than 30 years of service is 1/144 for each of the
first 36 months the spouse is under full retirement age when
her or his annuity begins and decreases to 1/240 for each
month (if any) over 36. However, if a railroad employee had
any creditable railroad service before August 12, 1983, the
employee and spouse retirement age for tier II purposes remains
65. Age reductions are not applied to spouse annuities based
on the spouse’s caring for a child.
Dual
Annuities
If both the employee and spouse are
railroad employees and either one had some railroad service
before 1975, the spouse tier I amount is reduced by the amount
of the railroad employee tier I to which the spouse is entitled
and that reduction is restored in the spouse tier II amount.
The spouse tier I amount cannot be reduced below zero.
If a spouse is also a railroad employee
annuitant and both the employee and spouse started railroad
employment after 1974, the amount of any spouse or divorced
spouse annuity is reduced by the amount of the employee
annuity to which the spouse is also entitled.
A spouse who is also entitled to a
survivor annuity on a different earnings record will
receive only the higher benefit unless the smaller benefit
is chosen.
Survivor
Annuity
Tier I
The survivor tier I amount is based
on the deceased employee’s combined railroad retirement and
social security credits, and is computed using social security
formulas. In general, the survivor tier I amount is equal
to the amount of survivor benefits that would have been payable
under social security.
The gross
survivor tier I amount (before reductions for early
retirement, or other benefits) is generally equivalent to
the unreduced tier I retirement benefit the deceased employee
had, or would have, received.
For surviving aged or disabled widow(er)s,
remarried widow(er)s and surviving divorced spouses whose
annuities begin a year or more after the employee’s death,
the “average indexed monthly earnings,” upon which the tier
I benefit is based, may be reindexed using a later year if
it would result in a higher benefit, provided the employee
died before age 62. The reindexing takes into account changes
in national earnings levels which occur after the employee’s
death but before the survivor becomes eligible for benefits.
This provides a benefit consistent with earnings levels at
the time of the survivor’s eligibility, rather than the time
of the employee’s death.
A widow(er), surviving divorced spouse
or remarried widow(er) whose annuity
begins at full retirement age or later receives the
full tier I amount unless the deceased employee received an
annuity that was reduced for early retirement. The eligibility
age for a full widow(er)’s annuity is gradually rising from
65 to 67. The maximum age reductions will range from 17.1
percent to 20.36 percent, depending on the widow(er)’s date
of birth. For a surviving divorced spouse or remarried widow(er),
the maximum age reduction is 28.5 percent. For a disabled
widow(er), disabled surviving divorced spouse or disabled
remarried widow(er), the maximum reduction is 28.5 percent,
even if the annuity begins at age 50.
A widow(er) or surviving divorced
spouse whose eligibility is based
on caring for a child of the employee receives 75%
of the full tier I amount. Benefits to a surviving divorced
spouse end when the child is 16. An eligible
child also receives 75% of the full tier I amount.
The total amount the family can receive is subject to a maximum
(usually applicable if there are three or more family members,
not counting aged or disabled surviving divorced spouses,
entitled to survivor annuities).
A dependent
parent can receive 82.5% of the full tier I amount,
but if both parents are eligible, the total amount cannot
be more than 150% of the full tier I amount.
Dual
benefit reduction.--The tier I amount described above
is reduced by the amount
of any social security benefit or by the tier I amount
of any railroad retirement employee annuity the survivor also
receives. If either the deceased employee or the widow(er)
had some railroad service before 1975 but less than 120 months,
the survivor tier I portion is payable only to the extent
that it exceeds the tier I portion of the widow(er)’s own employee
annuity. In the case of a widow or dependent widower who is
also a railroad employee annuitant, and either the widow(er)
or the deceased employee had 120 months of railroad service
before 1975, the tier I reduction may be partially restored
in the survivor tier II amount. If the widow(er) qualifies
for a railroad retirement employee annuity and neither the
widow(er) nor the deceased employee had any railroad service
before 1975, the survivor annuity payable to the widow(er)
is reduced by the amount of the widow(er)’s own employee annuity.
The tier I amount may also be reduced
by certain Federal, State
or local government pensions which are based on a
widow(er)'s own earnings. For widow(er)s subject to the government
pension reduction, the tier I reduction is equal to 2/3 of
the public pension.
Tier II
Widow(er)s.--December
2001 legislation established an "initial minimum amount"
which yields, in effect, a widow(er)'s tier II benefit equal
to the tier II benefit the employee would have received at
the time of the award of the widow(er)'s annuity, minus any
applicable age reduction. It does this by adding a "guaranty
amount," initially set at 50% of the employee's tier
II, to the 100% tier I and 50% tier II benefits provided under
prior law.
This "guaranty amount" is offset each year by the dollar amount of the cost-of-living
increases payable in both the tier I and tier II benefits
provided under prior law. Consequently, such a widow(er)'s
net benefit payment will not increase until such time as the
widow(er)'s annuity, as computed under prior law with all
interim cost-of-living increases otherwise payable, exceeds
the widow(er)'s annuity computed under the initial minimum
amount formula.
The widow(er)s’ guaranty provision
applies to all widow(er)s whose annuities begin February 1,
2002, or later, and to some, but not all, widow(er)s on the
rolls before that date. If, because of previous cost-of-
living adjustments, annuities awarded before February 2002
were already higher than the annuity that would be payable
under the December 2001 legislation, the guaranty did not
apply.
The same age
reductions that apply to tier I amounts also apply
to tier II amounts.
If a widow(er) is also a railroad
employee annuitant and both the widow(er) and the deceased
employee started railroad employment after 1974, the amount
of any survivor annuity is reduced by the amount of the
employee annuity to which the survivor is also entitled.
Other
survivors.--Each child receives 15% of the deceased
employee’s tier II amount, and each surviving parent receives
35%. The minimum total tier II amount payable to a family
is 35% of the employee’s tier II amount, and the maximum,
130%.
A tier II benefit is not provided
for a surviving divorced spouse or a remarried widow(er).
A tier II benefit is not payable to surviving parents if other
family members may receive benefits or if the parent has remarried.
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