Recently, as part of a Republican budget proposal, Railroad Retirement annuity benefits were targeted for reduction in order to address Federal budget deficits. The reality of the situation is that the Federal government would not realize any savings. Payroll taxes paid by railroad employers and their employees are the primary source of funding for the railroad retirement-survivor benefit programs.
Railroad retirement taxes, which have historically been higher than social security taxes, are calculated, like benefit payments, on a two-tier basis. Railroad retirement tier I payroll taxes are coordinated with social security taxes so that employees and employers pay tier I taxes at the same rate as social security taxes. In addition, both employees and employers pay tier II taxes which are used to finance railroad retirement benefit payments over and above social security levels. These tier II taxes are based on the ratio of certain asset balances to the sum of benefit payments and administrative expenses.
Revenues in excess of benefit payments are invested to provide additional trust fund income. The National Railroad Retirement Investment Trust manages and invests railroad retirement assets. Railroad retirement funds are invested in non-governmental assets, as well as in governmental securities.
Additional trust fund income is derived from the financial interchange with the social security trust funds, revenues from Federal income taxes on railroad retirement benefits, and appropriations from general treasury revenues provided after 1974 as part of a phase-out of certain vested dual benefits.