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Stop, Look & Listen: Railroad Retirement Benefits Q&A

Answers are provided by Robert S. Kaufman

Is The Railroad Retirement System Financially Solvent?

(Posted January 25, 2004; revised July 18, 2004)

Question 370: How solvent is Railroad Retirement?

Answer: As you probably know, government retirement systems are not held to the same funding and reserve requirements that apply to private pension plans.

The Railroad Retirment system is required to make annual financial reports to the Congress and the President and to do a triennial acturial evaluation, which projects income and liabilities 75 years into the future. The latest study was completed in 2002. It found that no financial problems are anticipated for at least the next 19 years. Beyond that point, a lot will depend on the level of future employment in the railroad industry, which generates income to the system through payroll taxes. The study did not recommend any funding changes.

At the end of 2003, the balance in the Trust Funds stood at almost $24.2 billion, which equals more than 2 years' worth of current benefit payments. The new National Railroad Retirement Investment Trust, which manages the investment of the Tier 2 Trust Fund, did NOTE:not begin until FY 2003. Initial investments by the Trust yielded a 22.6 percent return, so the future outlook appears to be even more promising than the last actuarial study.

One note of caution, though. Almost 40% of the system's annual income comes from the Social Security Trust Funds in the form of reimbursement for most of the Tier 1 payments made by the RRB. If the Social Security system should ever face a financial shortfall in the future, the Railroad Retirement System could be directly impacted.

NOTE: Please see Question # 657 for more information on this subject.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.

Copyright 1997-2017 Robert S. Kaufman
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