Question 675: The quarterly financial report of the National Railroad Retirement Investment Trust report (March 31, 2008)shows investments in JP Morgan and Lehman Brothers. How concerned should railroad employees be in regards to their Tier II benefits? Should a employee who is near retirement (3 years away) postpone retirement?
Answer: Your question is very timely in view of the current problems with Wall Street.
The National Railroad Retirement Investment Trust is not a government agency. It is independent of the Railroad Retirement Board. The sole function of the Trust is to invest Tier 2 funds in the equity markets in the same manner as private sector pension plans do. Previously, investments of Tier 2 funds were limited to special Federal government securities.
The Trust is headed by a 7-member board. Three members are appointed by rail brotherhoods, and three are appointed by the railroads. Those 6 members then select an independent member who is from outside the rail industry to lead the board.
Safeguards are in place to ensure that, even when the stock market falls, the benefits for rail workers and their families are protected. The Tier 2 Trust Fund has a minimum reserve requirement of between 4 to 6 years of payments. If the Tier 2 Trust Fund reserve ever falls below the 4-year minimum, the Trust has authority to raise the Tier 2 tax rate on the railroads (but not on the rail workers).
Approximently 68% of the funds are invested in equities (stocks), 30% in fixed income securities (bonds) and 2% held in cash. The Trust began investments in early 2002 with a balance of $20.7 billion. As of June 30, 2008, the balance was $30.6 billion, a gain of almost $10 billion.
The fund has experienced investment losses in 2008 due to the downturn in stocks. The fund balance declined more than $2.5 billion. The current fund balance is far in excess of the 4 to 6 years of Tier 2 benefit payments that is set as the minimum reserve, so the Tier 2 Trust Fund is financially in a very strong position. There is certainly no reason for rail workers to delay their retirement because of falling stock prices.