Question 657: In answering Question #370, you state that 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 Railroad Retirement Board. Reimbursement for what?
Answer: Railroad Retirement and Social Security were established as separate independent retirement systems in the late 1930's. Railroad Retirement was established for workers in a single industry. Social Security had a much broader mandate.
There were political and historic reasons why seperate systems were set up by the Congress and approved by President Roosevelt.
Because of its narrow focus, Railroad Retirement never had more than 2 million partisipants (at the height of World War Two). As a seperate system, Railroad Retirement provides certain savings to the Social Security Trust Funds because they do not have to pay benefits for railroad work. But they also lose income to the trust funds because rail workers and railroads do not pay taxes into the Social Security Trust Funds.
As time went on, Social Security grew concerned that the existance of the Railroad Retirement system would become a liability. In 1951, the Congress and President Truman enacted a "Financial Interchange" between Social Security and Railroad Retirement to address that concern.
The Railroad Retirement system transfers to Social Security the amount of payroll taxes that rail workers and railroads would have paid into the Social Security Trust Funds if rail work were covered by that system. In turn, Social Security transfers to Railroad Retirement Trust funds the amount of monthly benefits Social Security would have paid if rail work were covered by Social Security.
The first transfer was retoactive to January, 1937. Since then annual transfers have been made. In most years, the transfer has favored Railroad Retirement.