[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Program Descriptions]
[Section 6. Railroad Unemployment Compensation System]
[From the U.S. Government Printing Office, www.gpo.gov]






 
[1996 Green Book] SECTION 6. RAILROAD UNEMPLOYMENT COMPENSATION SYSTEM

                                CONTENTS

Overview
Benefits and Eligibility Requirements
Taxes
1996 Legislation
Reference

                                OVERVIEW

    The Railroad Unemployment Compensation (RRUC) System has 
been in existence since 1938. Railroad workers were initially 
covered by the unemployment provisions of the Social Security 
Act of 1935. However, the Railroad Unemployment Insurance Act 
(Public Law 75-722) was passed in 1938 to provide a uniform 
unemployment insurance system for all railroad workers, 
regardless of the State in which they worked or lived. This 
action was taken largely because of administrative problems at 
that time in handling claims for railroad workers who earned 
wages in a number of different States and as a result of the 
railroad unions' desire that individuals throughout the 
industry be treated the same for purposes of unemployment 
compensation.
    The Technical and Miscellaneous Revenue Act of 1988 (Public 
Law 100-647) increased the railroad unemployment and sickness 
daily benefit rate; indexed future benefit rates, qualifying 
earnings requirements and the contribution base to national 
wage levels; established a waiting period for benefits; and 
included other measures to improve the Railroad Unemployment 
Insurance System's financing.
    The Emergency Unemployment Compensation Act of 1991, as 
amended in November 1993 (Public Laws 102-164 and 103-152), 
providing temporary extended State unemployment benefits, also 
provided temporary extended benefits under the Railroad 
Unemployment Insurance Act.
    Table 6-1 summarizes program characteristics of the 
Railroad Unemployment Program for selected years between 1970 
and 1996. The table also contains projected statistics for 
1997.

                 BENEFITS AND ELIGIBILITY REQUIREMENTS

    A new benefit year for unemployment and sickness benefits 
begins every July 1. To qualify in the benefit year beginning 
July 1, 1996, a worker must have base year railroad earnings of 
at least $2,125 in the preceding calendar year, not counting 
earnings over $850 per month. Under the indexing provisions of 
the law reflecting growth in average national wages, a worker 
must have base year earnings of $2,162.50 in calendar year 
1996, not counting earnings of more than $865 per month, to 
qualify in the benefit year beginning July 1, 1997. If the base 
year was the first year of railroad service, the worker also 
must have worked in 5 months of that year (see table 6-2).
    No benefits are payable for the first claims for 
unemployment and sickness in a benefit year. This generally 
results in a 2-week waiting period. A claimant is normally paid 
for days of unemployment or sickness over 4 in 14-day 
registration periods.
    The maximum daily benefit payable in the benefit year which 
began July 1995 was $36; and for biweekly claims, maximum 
benefits could total $360. The maximum daily benefit remains 
$36 in the benefit year which begins July 1996. As a result of 
sequestration under the Balanced Budget and Emergency Deficit 
Control Act, unemployment and sickness benefits have been 
reduced periodically since 1986. In fiscal year 1990 maximum 
biweekly benefits were initially reduced from $310 to $293.57. 
The Omnibus Budget Reconciliation Act of fiscal year 1990 
revised the biweekly rate to $304.73. Budget reconciliation 
legislation has precluded reductions since then.
    The program offers ``normal'' benefits and two categories 
of ``extended'' benefits. The duration of benefits varies by 
worker. Qualified workers can receive normal benefits for up to 
130 days or 26 weeks, but the total may not exceed their 
creditable wages in the base year. Two groups of workers may 
get extended benefits:
 1. Workers with at least 15 years of railroad service may get 
        up to 130 additional days, or up to an additional 26 
        weeks of benefits beyond the normal 26 weeks; and
 2. Workers with at least 10 but fewer than 15 years of 
        railroad service may receive up to 65 additional days 
        or 13 additional weeks.
    The average duration of benefits fluctuates with the 
unemployment rate. In the 1940-95 period, it ranged from 7.4 to 
19.1 weeks and averaged 12.1 weeks.
    In 1946, a program of cash sickness benefits was 
established for railroad workers as part of the unemployment 
compensation system. Sickness benefits are financed out of the 
same employer paid payroll taxes used to finance unemployment 
compensation benefits. A qualified railroad worker may receive 
sickness benefits if he files a ``statement of sickness'' 
signed by a doctor that is mailed within 7 days of the first 
day for which a day of sickness is claimed.
    A rail worker who is unemployed due to a strike not in 
violation of the Railway Labor Act of 1926 can receive 
unemployment compensation benefits after a 14 day waiting 
period. Unemployment benefits cannot be paid to individuals 
participating in a strike that is in violation of the Railway 
Labor Act, and is therefore ``illegal.'' Individuals who are 
unemployed due to an ``illegal'' strike, but who are not 
actually participating in the strike, are eligible for 
unemployment compensation benefits but are subject to the 14-
day waiting period.

                                               TABLE 6-1.--RAILROAD UNEMPLOYMENT AND SICKNESS INSURANCE PROGRAM STATISTICS, SELECTED YEARS 1970-97                                              
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                                                                                                                     Benefit year ending in                                                     
                                                              ----------------------------------------------------------------------------------------------------------------------------------
                      Program statistic                                                                                                                                                    1997 
                                                                1970    1975    1980    1985    1986     1987     1988    1989     1990    1991    1992    1993    1994    1995    1996   (est.)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Insured unemployment (percent) \1\...........................      11      12      17      18      20       18       14      10        9       9       8       7       6       6       6       6
Coverage (thousands of qual. employees)......................     748     640     609     459     445      420      393     366      349     336     322     311     302     295     289     288
Unemployment (average daily benefit):                                                                                                                                                           
    Current dollars..........................................   12.61   12.68   24.94   24.98   24.97  \2\ 24.                                                                                  
                                                                                                            76  \3\ 24.                                                                         
                                                                                                                     75      NA  \4\ 30.                                                        
                                                                                                                                      16   30.85   30.97   32.86   33.16   35.78   35.89   35.89
    In 1995 dollars \5\......................................   46.99   35.13   46.76   35.19   34.30    33.08    31.74      NA    35.17   34.51   33.65   34.65   34.09   35.78      NA      NA
Sickness (average daily benefit):                                                                                                                                                               
    Current dollars..........................................   12.66   12.69   24.97   24.99   24.98  \2\ 24.                                                                                  
                                                                                                            71  \3\ 24.                                                                         
                                                                                                                     76      NA  \4\ 30.                                                        
                                                                                                                                      25   30.81   30.98   32.84   33.25   35.75   35.95   35.95
    In 1995 dollars \5\......................................   47.18   35.17   46.82   35.20   34.33    33.02    31.75      NA    35.27   34.48   33.65   34.63   34.19   35.75      NA      NA
Number of beneficiaries:                                                                                                                                                                        
    Unemployment (thousands).................................    79.2    77.9   101.6    81.7    87.6     75.2     54.4    35.2     29.9    30.5    26.4    20.7    18.6    18.7    16.8    16.7
    Sickness (thousands).....................................    91.4    67.4    76.8    51.6    49.5     45.2     41.7    33.7     28.2    25.6    23.6    21.8    21.6    21.0    20.4    20.4
Benefit exhaustions, normal benefits:                                                                                                                                                           
    Unemployment (thousands) \6\.............................     6.3     4.8    11.2    16.1    17.4     17.0     10.6     6.6      5.6     5.9     5.9     4.3     4.0     2.9     3.4     3.4
    Sickness (thousands).....................................    16.8     7.9     9.5     8.0     8.8      9.1      8.4     7.6      6.1     5.4     5.3     4.6     4.7     4.3     4.4     4.4
Amount paid:                                                                                                                                                                                    
    Unemployment (millions) \7\..............................    35.0    37.5   112.7   125.8   140.4    118.6     85.8    60.8     57.2    60.1    55.1    49.2    40.4    37.4    40.7    40.9
    Sickness (millions)......................................    57.9    29.6    60.0    43.8    47.4     55.7     24.8    32.1     32.6    32.6    12.0    21.5    25.4    24.2    25.8    25.2
Total tax collection:                                                                                                                                                                           
    Benefits account (millions)..............................   122.7   109.4   173.3   223.1   213.2    192.6    186.9   181.9    192.5   165.7   134.7    66.0    10.5     5.6     4.9    10.6
    Administration (millions)................................     8.2     7.3    12.9    15.2    14.2     12.9     12.7    13.9     17.2    17.4    20.5    14.8    16.5    17.4    18.0    17.8
Outlays:                                                                                                                                                                                        
    Benefits (millions) \6\..................................    93.0    67.1   172.7   169.6   187.8    174.3    110.6    92.9     89.8    92.7    67.1    70.7    65.9    61.6    66.4    66.1
    Administration (millions)................................     6.6     7.3    11.2    14.8    15.2     14.3     14.2    13.5     14.6    14.5    16.8    16.1    17.2    15.9    16.8    17.0
Account balance (millions) \8\...............................    81.3   113.9    40.8    50.8    85.7     98.8    135.7   223.8    188.4   288.0   368.9   212.4   220.2   177.5   128.8    81.4
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\1\ Unemployment beneficiaries divided by qualified employees; does not include sickness insurance beneficiaries.                                                                               
\2\ Benefit amounts for registration periods beginning on August 1 through September 17, 1986, were reduced 7.4 percent under the Gramm-Rudman-Hollings Act.                                    
\3\ Benefit amounts for claims processed on or after November 20, 1987 were reduced 8.5 percent under the Gramm-Rudman-Hollings Act. Benefit payments were restored to previous levels in late  
  December 1987 and refunds of previously withheld amounts were made in the first week of January.                                                                                              
\4\ Benefit amounts for registration periods beginning on or after October 1, 1989, were originally reduced by 5.3 percent under the Gramm-Rudman-Hollings Act. On February 10, 1990, the final 
  fiscal year 1990 Gramm-Rudman-Hollings sequestration rate of 1.7 percent was implemented for all days of unemployment and sickness after September 30, 1989. Refund payments were issued on   
  February 13, 1990. Cumulative averages do not reflect these refunds.                                                                                                                          
\5\ Calculated using the fiscal year CPI-X1 price index.                                                                                                                                        
\6\ Excludes supplemental extended benefits financed from general revenues.                                                                                                                     
\7\ Includes benefits under title V of the Emergency Unemployment Compensation Act of 1991, as amended, which has provided extended unemployment benefits, regardless of years of service.      
\8\ Account balances do not reflect amounts due the Railroad Retirement Account. Loans were repaid in full with a $180.2 million cash repayment from the Railroad Unemployment Insurance Account
  on June 29, 1993.                                                                                                                                                                             
                                                                                                                                                                                                
NA--Not available.                                                                                                                                                                              
                                                                                                                                                                                                
Source: Railroad Retirement Board.                                                                                                                                                              


 TABLE 6-2.--BENEFITS UNDER THE RAILROAD UNEMPLOYMENT INSURANCE SYSTEM, 
                    BENEFIT YEARS 1995-96 AND 1996-97                   
------------------------------------------------------------------------
       Benefit category                      Benefit amount             
------------------------------------------------------------------------
Qualifying wages:                                                       
    Base year 1994............  $2,100.00                               
    Base year 1995............  $2,125.00                               
    Base year 1996............  $2,162.50                               
Daily benefit rate: Basic rate  60 percent of daily rate of pay.        
    Maximum:                                                            
        Benefit year 1995-96..  $36.00                                  
        Benefit year 1996-97..  $36.00                                  
    Minimum guarantee.........  $12.70                                  
Maximum normal benefits: \1\                                            
    For 14-day period:                                                  
        Benefit year 1995-96..  $360                                    
        Benefit year 1996-97..  $360                                    
    For benefit year:                                                   
        Duration..............  130 compensable days.                   
        Amount: \1\                                                     
            Benefit year 1995-  $4,680                                  
             96.                                                        
            Benefit year 1996-  $4,680                                  
             97.                                                        
Maximum extended benefits:                                              
    10-14 years' service:                                               
        Duration..............  65 compensable days.                    
        Amount:                                                         
            Benefit year 1995-  $2,340                                  
             96.                                                        
            Benefit year 1996-  $2,340                                  
             97.                                                        
    15 or more years' service:                                          
        Duration..............  130 compensable days.                   
        Amount:                                                         
            Benefit year 1995-  $4,680                                  
             96.                                                        
            Benefit year 1996-  $4,680                                  
             97.                                                        
------------------------------------------------------------------------
\1\ Not to exceed the employee's taxable earnings in the base year      
  counting earnings up to $1,085 a month for benefit year 1995-96 (base 
  year 1994) and $1,098 a month for benefit year 1996-97 (base year     
  1995).                                                                
                                                                        
Note.--Some net sickness benefits payments are somewhat less than the   
  above amounts since they are subject to tier 1 railroad retirement    
  taxes.                                                                
                                                                        
Source: Railroad Retirement Board.                                      

    Total expenditures for unemployment and sickness payments 
were $62 million in benefit year 1994-95, which was 0.5 percent 
of total wages paid by the industry during the same period. 
This compares to a peak of 5.1 percent in 1959. It is also much 
lower than in benefit year 1983, a recession year, when the 
figure was 3.9 percent. Since the beginning of sickness 
benefits, unemployment benefits have comprised over two-thirds 
of total payments. In 1995, unemployment benefits accounted for 
61 percent of the total.
    Benefit payments vary directly with the insured 
unemployment rate, covered employment, average weekly benefit 
amount, and average duration of benefits. The insured 
unemployment rate is the percentage of workers qualified under 
the Railroad Unemployment Compensation System Program who drew 
benefits in a particular benefit year. The railroad insured 
unemployment rate has been high and volatile since the 
beginning of the program, averaging 13 percent. Since 1946 it 
has ranged from a relatively low 6 percent to 30 percent in 
benefit year 1982-83.
    Changes in covered employment have short-run and long-run 
effects on the RRUC Program. In the short run, when layoffs 
cause employment to decline, the insured unemployment rate and 
benefits paid increase. In the long run, when employers have 
fewer workers to lay off, benefits decline and the program 
shrinks. Since the peak of 1,680,000 workers in calendar year 
1945, average railroad employment declined to 264,000 in 1995. 
Two-thirds of this decline occurred in the 21 years between 
1945 and 1966. Thus, the average annual decline through 1966 
was 45,000, but after 1966 it was 16,000.

                                 TAXES

    The Railroad Unemployment and Sickness Benefit Programs are 
financed by payroll taxes on railroad employers. The employees 
do not pay railroad unemployment taxes. The taxable earnings 
base in calendar year 1996 is the first $865 of each employee's 
monthly earnings. The earnings base is indexed each year by a 
rate which is equal to approximately two-thirds of the annual 
rate of increase in the maximum base for railroad retirement 
tier 1 taxes.
    Experience-based tax rates, phased in on a partial basis in 
1991 and 1992, became fully effective in 1993 with a minimum of 
0.65 percent and a maximum of 12 percent. The maximum rate in 
future years could be 12.5 percent if a maximum surcharge is in 
effect.
    Railroad unemployment taxes are collected by the Railroad 
Retirement Board. Of each year's tax receipts, an amount equal 
to 0.65 percent of taxable payroll is set aside for 
administration. Excess funds allocated but not needed for 
administration are transferred to the Railroad Unemployment 
Insurance Account at the end of each fiscal year.
    The Railroad Unemployment Insurance and Railroad 
Unemployment Insurance Administration Accounts are part of the 
Federal Unemployment Trust Fund. This trust fund has 53 State 
UC Program accounts, 4 Federal accounts, and the 2 railroad 
accounts.
    Since 1959, the Railroad Unemployment Trust Fund has been 
able to borrow funds from the railroad pension fund when 
employer taxes have not been sufficient to cover the costs of 
unemployment and sickness benefits. The RRUC Program became 
depleted for the first time in 1960 after a long decline from 
peak reserves of nearly 18 percent of total annual wages in 
1948. By 1963, it owed the retirement account $314 million, or 
5.9 percent of total annual wages paid in the industry that 
year. The program gradually recovered during the 1960s until it 
had positive reserves again in 1974. The reserves were depleted 
again in 1976 through 1978 and loans were again required 
beginning in 1981.
    A rapid decline in 1981 and 1982 in railroad employment 
during a recession resulted in substantial borrowing from the 
pension system which reached a peak level of over $850 million 
at the end of 1986. This debt was repaid in full with a $180.2 
million cash repayment from the Railroad Unemployment Insurance 
Account on June 29, 1993. Interest on the loan during the debt 
period was charged at the average rate earned by U.S. Treasury 
securities held by the retirement account so that the 
retirement account did not lose any investment earnings as a 
result of the loan.
    Financial measures to assist the Railroad Unemployment 
Insurance Account were included in the Railroad Retirement 
Solvency Act enacted August 12, 1983. The Solvency Act raised 
the taxable limit on monthly earnings and the base-year 
qualifying amount. The waiting period for benefits during 
strikes was increased from 7 to 14 days. A temporary repayment 
tax on railroad employers began July 1, 1986, to initiate 
repayment of the loans made by the Railroad Retirement Account.
    The 1983 legislation also mandated the establishment of a 
Railroad Unemployment Compensation Committee (1984) to review 
the unemployment and sickness benefit programs and submit a 
report to Congress. The Committee reviewed all aspects of the 
Railroad Unemployment Insurance System, in particular repayment 
of the system's debt to the Railroad Retirement Account, and 
the viability of transferring railroad unemployment benefit 
payments to State programs.
    The Consolidated Omnibus Budget Reconciliation Act of April 
1986 (Public Law 99-272) amended the temporary unemployment 
insurance loan repayment tax beginning July 1, 1986, continued 
authority for borrowing by the Railroad Unemployment Insurance 
Account from the Railroad Retirement Account, and provided a 
contingency surtax on rail employers if further borrowing took 
place.
    The 1988 Technical and Miscellaneous Revenue Act Railroad 
Unemployment Insurance Amendments were based on the 
recommendations of the Railroad Unemployment Compensation 
Committee. The 1988 amendments improved financing by indexing 
the tax base to average national wages and experience rating 
employer contributions. Repayment of the unemployment system's 
debt to the retirement system was assured by fixing the loan 
repayment tax at 4 percent of the contribution base and 
retaining this elevated tax rate until the debt was fully 
repaid with interest on June 29, 1993.
    A contingency surtax (3.5 percent), effective in the event 
of further borrowing by the Railroad Unemployment Insurance 
Account, was eliminated in 1991. Instead, a surcharge will be 
added to employers' unemployment insurance taxes for a calendar 
year if the balance in the unemployment insurance account on 
the previous June 30 goes below $100 million. The surcharge 
rate would be 1.5, 2.5, or 3.5 percent depending on how low the 
balance had fallen. If a 3.5 percent surcharge goes into effect 
for a given year, the maximum rate for any employer would be 
12.5 percent rather than 12 percent. If the account balance on 
the preceding June 30 is above $250 million, the excess will be 
refunded to the employers in the form of a rate reduction for 
the year through a pooled credit.
    The 1988 amendments require the Board to make annual 
financial reports to Congress beginning July 1989 on the status 
of the unemployment insurance system. The reports must include 
any recommendations for financing changes which might be 
advisable, specifically with regard to rates of employer 
contributions.
    The 1995 report stated that experience-based contribution 
rates, phased in during 1991 and 1992, would keep the system 
solvent, except under the most pessimistic employment 
assumptions. Even then, projections show only a small, short-
term cash flow problem with quick repayment of the loan. 
Maximum benefit rates increase 31 percent, from $36 to $47, 
from 1994 to 2004 and average employer contribution rates 
remain below 1.0 percent through 1996. The report also 
indicated that during the 10-year projection period (fiscal 
years 1995-2004), average employer contribution rates remain 
well below the maximum, even under the most pessimistic 
assumptions. The Board therefore recommended no changes to the 
system at that time.

                            1996 LEGISLATION

    After this section was written, Congress enacted H.R. 2594, 
the Railroad Unemployment Insurance Amendments Act of 1996 
(Public Law 104-251). Among other provisions, this law: raises 
daily benefit rates, indexes future increases to a monthly 
compensation base, shortens the waiting period for initial 
unemployment and sickness benefits, cuts the weeks of extended 
benefits payable to railworkers with more than 15 years' 
service, and establishes an earnings test for workers with days 
of employment as well as unemployment or sickness during each 
2-week registration period.

                               REFERENCE

Railroad Unemployment Compensation Committee. (1984, June). 
        Report of the Railroad Unemployment Compensation 
        Committee. Washington, DC: Author.