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Tier 2 Benefit Defined
(Posted December 3, 2004)
Question 533: What is the definition of a Tier 2 benefit?
Answer: The following is a detailed explanation of Tier 2 as currently described by the Railroad Retirement Board on its web site.
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 individuals years of service by such individuals 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.
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