Railroad Retirement Board - History

History

The assignment, furlough, and recall of most railroad employees was based on seniority. When work became scarce, employees with the least seniority were the first to be laid-off. The majority of railroaders were covered by pension plans, but private pension payments could be reduced if revenues were down, and many had been cut drastically by 1932.

This practice created a conflict between older employees, who preferred the certainty of a paycheck to an unreliable pension, and younger employees, who saw opportunity for increased job security if superannuated workers could be induced to retire by guaranteeing them a decent pension.

Railroad workers formed an association to agitate for government action. Labor proposed its own plan in response, eventually compromising with the workers to produce the Railroad Retirement Act of 1934. This legislation anticipated the Social Security Act of 1935, which covered most other employees, and was tailored to address the specific concerns of railroad workers.

The 1934 Act was soon found unconstitutional, but President Roosevelt intervened to push for a lasting compromise. This pressure resulted in the Railroad Retirement Act of 1935, which set up a staff retirement plan providing annuities based on an employee’s creditable railroad earnings and service, and Railroad Retirement and Carrier Taxing Acts of 1937, which made railroad employees the only private-sector workers outside the Social Security system to have a separate, federally administered pension plan. More than 95,000 elderly and disabled railroad employees applied for pension benefits by the end of 1937.

Since passage of the Railroad Retirement Acts of the 1930s, numerous other railroad laws have subsequently been enacted.

While the railroad retirement system has remained separate from the social security system, the two systems are closely coordinated with regard to earnings credits, benefit payments, and taxes. The financing of the two systems is linked through a financial interchange under which, in effect, the portion of railroad retirement annuities that is equivalent to social security benefits is coordinated with the social security system. The purpose of this financial coordination is to place the social security trust funds in the same position they would be in if railroad service were covered by the social security program instead of the railroad retirement program.

Legislation enacted in 1974 restructured railroad retirement benefits into two tiers, so as to coordinate them more fully with social security benefits. The first tier is based on combined railroad retirement and social security credits, using social security benefit formulas. The second tier is based on railroad service only and is comparable to the pensions paid over and above social security benefits in other industries.

The railroad unemployment insurance system was also established in the 1930s. The Great Depression demonstrated the need for unemployment compensation programs, and state unemployment programs had been established under the Social Security Act in 1935. While the state unemployment programs generally covered railroad workers, railroad operations which crossed state lines caused special problems. Unemployed railroad workers were denied compensation by one state because their employers had paid unemployment taxes in another state. Although there were cases where employees appeared to be covered in more than one state, they often did not qualify in any.

A federal study commission, which reported on the nationwide state plans for unemployment insurance, recommended that railroad workers be covered by a separate plan because of the complications their coverage had caused the state plans. Congress subsequently enacted the Railroad Unemployment Insurance Act in June 1938. The Act established a system of benefits for unemployed railroaders, financed entirely by railroad employers and administered by the RRB. Sickness benefits were added in 1946.