The Railroad Retirement Board (RRB) provides annuities to individuals who spent a large portion of their career in railroad employment, as well as to the employees' spouses. The program, created by the Railroad Retirement Act (RRA), is very similar to the better-known Social Security program. Its purpose is to provide retirement benefits for railroad workers who do not receive Social Security. This article provides a general overview of annuity benefits provided by the Railroad and the eligibility requirements for employees and their spouses to receive them.
Length of Service Requirement
Some employees who paid railroad retirement taxes will not receive retirement annuity benefits. To be eligible for these RRB benefits, an employee must have worked:
- At least 10 years in covered service for the railroad industry; or
- At least 5 years after 1995.
Workers with less than 10 years of service in positions that paid railroad specific taxes, or fewer than 5 years after 1995, are transferred to Social Security as their interests will not vest under the Railroad Retirement program. For purposes of meeting the service requirement, credit for a month's service is recorded if even one day was spent in railroad employment.
Starting and Stopping Retirement Annuity Payments
Employees and spouses cannot receive annuity payments until the employee stops their railroad employment and files an application to begin their monthly annuity. The RRB accepts employee applications up to three months before their retirement date (the annuity start date) to ensure there is time to navigate the complex rules and requirements of beginning annuity payments promptly upon retirement.
Neither employee nor spousal annuity benefits are payable in any month when a retired employee works for an employer covered under the RRA or a labor organization that works with the railroads.
Railroad Retirement Annuity Benefit Levels
Retirement benefits offered by the RRB and Social Security are generally calculated in the same manner. Unlike Social Security, however, early annuity reductions will not apply if an employee has at least 30 years of qualified employment. In these cases, an individual can begin receiving benefits as early as age 60 with no age-based reduction.
Tier I Benefits
The RBB's Tier I annuity benefits are very similar to Social Security benefits because they were designed to replace the Social Security benefits railroad employees do not receive. They are calculated using the same formula, basing benefit amounts on the highest 35 years of earnings. The annuities are generally first payable at age 62, with the full retirement age ranging from 65 to 67, depending on the recipient's birth year.
A small supplemental Tier I annuity is also payable if an employee had at least 25 years of service beginning before October 1, 1981, and has a current connection to the railroad. Eligibility for this annuity begins at:
- Age 60 if the employee has at least 30 years of creditable service; and
- Age 65 if the employee has 25 to 29 years of service.
Tier I benefit reductions for early retirement between age 62 and the full retirement age for those with less than 30 years of service are reduced in proportion to how long before full retirement age the employee chooses to leave railroad employment.
Tier II Benefits
In addition to Tier I benefits, the RRB alone offers a second level of benefits that resemble private pension benefits. Tier II benefits are based on the average monthly earnings for an employee's 60 months of highest earnings. The same age requirements that apply to Tier I also apply to Tier II benefits. Tier II benefits are also reduced by 25 percent for dually vested beneficiaries.
In addition to workers, Tier II benefits are provided to current spouses and survivors, but divorced spouses can only receive these benefits when they are part of a property settlement. Tier II spousal annuity benefits are 45 percent of the employee's Tier II benefits, while Tier II survivor benefits vary depending on the type of survivor.
Spousal Retirement Annuities
Once a qualified employee's spouse reaches a certain age, the RRB generally provides a spousal annuity equal to half of an employee's Tier I benefits. The employee must have ceased railroad employment and the marriage must be at least one year old (or the couple conceived a child). Spousal annuity benefits are subject to the same rules as employee annuities, and reductions of spousal annuities are generally larger than employee annuity reductions. The annuity amount is dependent upon:
- The employee’s age;
- The employee's retirement date; and
- The employee’s years of railroad service.
If a 61-year-old employee retired after 30 years of service, for example, the employee’s spouse is also eligible for an annuity the first full month the spouse reaches age 61. Early retirement reductions are applied to the spousal annuity if the spouse retires prior to the full retirement age (between 65 and 67 depending on birth year) just as for an employee.
A spouse can also receive benefits at any age if they care for a child under age 16 or a child who became disabled prior to age 22. Divorced spouses are eligible for Tier I spousal benefits under the same conditions as those that apply to Social Security.
Railroad retirement annuities provide a way for employees and their spouses to enjoy retirement after a long career. However, there are numerous rules and regulations governing the calculation and disbursement of these annuities. Employees and their spouses should also take into consideration penalties for early retirement and returning to work when planning the course of the employee's career. For an understanding of the factors at play and their impact on annuity benefits it is best to consult a legal professional for situation-specific answers.