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Answers are provided by Robert S. Kaufman
Solvency of Railroad Retirement Program
(Posted August 8, 2001)
Question 124: Now that H.R. 1140 has passed the House, please assure me that the system is financially solvent. During the debate last week, those who opposed the bill said the system had serious financial problems that would be compounded if the proposed legislation became law.
Answer: The evaluation of public pension programs is very difficult. Most of the programs are not fully funded in the same manner as are private sector pensions under ERISA. There are good reasons for that difference, particularly the Federal benefit programs of Railroad Retirement and Social Security. In the end, Federal programs are backed by the "full faith and credit of the United States Government." In the entire history of the country, the Federal government has never defaulted on any of its benefit programs.
The Railroad Retirement Board has a staff of professional actuaries who are responsible for doing periodic analysis of the financial future of the system. The evaluation process takes into account such factors as future employment levels, mortality rates, interest rates and other significant economic indicators that could affect the earnings of the Trust Funds. Several different calculations are made using different assumptions.
The program has many safeguards and "triggers" that will cause tax rates to rise if the assests of the system fall below certain levels.
Both Social Security and Railroad Retirement could face financial problems later this century (more than 25 years from now) if new sources of income are not introduced. A commission appointed by President Bush is studying ways to correct the long-term problems. The current system could be changed to allow workers to invest a portion of their Social Security taxes in stocks and corporate bonds.
The changes proposed in H.R. 1140 allow the investment of certain assets in the stock market and bond market. Unlike the proposals for Social Security, the trustees--not individual workers--will make the investments. If this improves the fund's future income, perhaps no further changes are needed.
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