Unions, carriers
reach retirement deal

WASHINGTON -- Full retirement benefits at age 60 with 30 years of service, parity for widows, and five-year vesting are three of the cornerstones of an historic agreement that will benefit railroad retirees if Congress passes legislation this year to improve the Railroad Retirement System.

On January 14, the UTU joined a coalition of nine other rail labor organizations in an agreement with freight rail carriers represented by the National Railway Labor Conference (NRLC) on proposed amendments to the Railroad Retirement Act (RRA) that will significantly benefit railroad retirees.

The agreement now must be drafted into legislation and passed by Congress. If enacted by Congress, these changes would be the first major benefit improvements to railroad retirement in more than 25 years without corresponding cutbacks.

Today, employees must attain age 62 and have 30 years of service in order to receive an unreduced annuity. Under the proposed change, employees with 30 years of service will be able to retire at age 60 with an unreduced annuity. In addition, they will be able to gain GA-46000 coverage, and the $75,000 lifetime maximum will be annually increased to keep pace with the rate of medical inflation.

"The history of railroad retirement is that the unions and carriers have to support changes in order for Congress to support it," said Paul C. Thompson, UTU general secretary and treasurer. "We have forged a powerful coalition among rail labor and a partnership with the carriers to get the job done. This is a major victory for all retirees and their spouses. We have lowered the retirement age to 60 with full benefits, including healthcare, and fixed the widows' benefit."

The other unions joining the UTU in the coalition are the Brotherhood of Railroad Signalmen, International Brotherhood of Electrical Workers, Transport Workers Union, International Association of Machinists, Transportation Communications Union, Brotherhood of Railroad Carmen/TCU, American Train Dispatchers (ATDD), International Brotherhood of Boilermakers and Blacksmiths, Sheet Metal Workers International and the National Conference of Firemen and Oilers division of the Service Employees International Union.

The Brotherhood of Locomotive Engineers and Brotherhood of Maintenance of Way Employees, however, are not part of the coalition. Ironically, the ATDD split from the BLE International on this issue.

The improvements are made possible because the agreement calls for changing the current law that limits the investment of Railroad Retirement trust fund assets. Under the agreement, a newly established investment board with equal labor-management participation would be permitted to invest trust fund assets like other large pension plans. Actuaries say that this should increase future returns.

"Our starting point was that nothing could be done that would jeopardize the fiscal solvency of the current retirement system," said Thompson. "The legislation will also require that only the carriers will absorb any future tax increases that might be necessary to protect the retirement system with no tax increase or benefit reduction for employees and retirees."

The highlights of the proposed amendments to the RRA include:

-- UNREDUCED RETIREMENT BENEFITS AT AGE 60 WITH 30 YEARS OF SERVICE, INCLUDING HEALTHCARE COVERAGE BETWEEN AGE 60 AND 65
Today, if employees with 30 years of service retire at age 60 or 61, their annuity is permanently reduced by taking 20% or more off the Tier I amount, and the annuities of their spouses are also reduced. This significant permanent reduction discourages most eligible employees from retiring before age 62. Under the proposed change, employees with 30 years of service will be able to retire at age 60 with an unreduced annuity.

In addition, employees working today for one of the national carriers who retire at age 60 are ineligible for the National Early Retirement Major Medical Benefit, known as GA-46000. That means they go without healthcare coverage until age 65 when Medicare kicks in, which is a detriment to an earlier retirement.

Under the new agreement, GA-46000 will be provided to employees retiring at age 60 with 30 years of service. In addition, the carriers have agreed to eliminate the cap of $75,000 in GA-46000 and to index it based upon the medical CPI, which is currently running at about 10% per year. This benefit will apply to existing retirees who are currently under GA-46000. The NRLC has committed to try to obtain the same benefit for carriers not currently in GA-46000.

-- EXPANSION OF "WIDOW(ER)" BENEFITS
Under the current railroad retirement system, the widow(er) is eligible for the full amount of the deceased spouse's Tier I benefit, but only 50% of the deceased employee's Tier II benefit.

Under the proposed change, the surviving spouse will be guaranteed an amount no less than the amount of the annuity that the employee was receiving the month before death. An eligible surviving spouse will receive the greater of the annuity the widow or widower would have otherwise received or the guaranteed amount. This guarantee will apply to all eligible surviving spouses upon enactment, and is a major improvement over House Resolution 52, which was introduced in Congress last year.

-- NO TIER II TAX INCREASE FOR EMPLOYEES
The agreement requires the carriers to automatically absorb any future tax increase necessary to keep the railroad retirement system solvent. The carriers agreed to accept any and all risks associated with a newly established investment board that would be permitted to invest railroad retirement trust fund assets like other large pension plans. Current law restricts investment of assets to U.S. Treasury issues. By allowing assets to be invested similar to other large pension plans, the railroad retirement system should have higher returns and more funds available, which can then be returned to the parties in the form of improved employee benefits and decreased employer taxes. Rail labor and management will have an equal number of members on the investment board. In addition, the proposed changes include a provision that will automatically increase or decrease railroad retirement taxes as needed to maintain an adequately funded trust fund. The carriers, however, will fund any increases.

-- FIVE-YEAR VESTING
An employee currently must have 10 years (120 months) of creditable railroad service to be eligible for retirement benefits. Under the agreement, the vesting requirement would be reduced to five years for employees currently in service.

-- REPEAL OF RETIREMENT BENEFIT MAXIMUM FOR LONG-TERM EMPLOYEES
Currently the total amount of railroad retirement benefits payable to an employee and spouse is limited to the Railroad Retirement Act Maximum (RRAM) geared to the employee's average monthly earnings prior to retirement. The RRAM amount is derived from the highest two years of creditable railroad retirement or social security covered earnings in the 10-year period ending with the year the employee's annuity begins.

When the benefit maximum is applicable, the reduction in earned annuities can be significant, and most often penalizes long-service employees with moderate earnings, or employees forced to take buy-outs.

The number of retirees affected by this reduction has grown in recent years to where it currently affects 10% of awards.

Under the agreement, the RRAM would not only be repealed for future retirees, but also for retirees currently subject to it. Their annuities will immediately increase.

-- FUTURE IMPROVEMENTS
The agreement calls for automatic future improvements if the retirement plan becomes overfunded. Should the plan assets exceed a level deemed by the Railroad Retirement Board to be more than adequate to pay benefits, employees and the carriers will split the surplus on a 50/50 basis. The carriers will be able to reduce their tax obligation, and the employees will have the choice of reducing their Tier II tax obligation, or using their share for benefit improvements, such as further age reductions or increased monthly annuities.

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