JACKSONVILLE, Fla. — Last month’s liberalizing of retirement benefits for the nation’s railroaders had an immediate effect on the industry. But the full implications go far beyond what’s seen at first glance and probably won’t be known for years, the Florida Times-Union reports.
Changes to the benefits, which are administered by the U.S. Railroad Retirement Board, were warmly greeted by workers, labor unions and the railroads when Congress agreed to them in December, effective Jan. 1.
Last month in Jacksonville, the number of railroad retirements was four times greater than January 2001, said Hank Crowe, district manager of the RRB. He’s expecting this year’s retirements to be double last year’s total.
Crowe and industry officials said another surge is expected in May when workers apply for retirement after qualifying for their 2002 vacation days. Others aren’t waiting. They just want out. Yet they don’t fully consider whether they can afford it — which isn’t a good move, said Marilyn DeVries, a financial adviser for American Express in Jacksonville.
“Some just think of eligibility and wanting to stop,” she said.
The law reduced the retirement age from 62 to 60, with 30 years of service. It also increased the average amount paid to survivors of railroaders by $300 per month. Workers are vested in the system after five years instead of the previous 10.
Changes to RRB benefits affect 940,000 Americans, 246,000 active railroaders and 694,000 beneficiaries. Florida has about 8,900 active railroad workers and 34,000 beneficiaries, which includes retirees and their families.
Jacksonville’s CSX Transportation, the nation’s third-largest railroad, has about 4,100 workers in Jacksonville. The effect of the benefit changes are much more than a two-year reduction in the retirement age. Railroads such as CSXT are going to save money by paring down their payrolls and leaving some jobs unfilled. Also, the percentage railroads will be required to contribute to the retirement fund will decrease over the years.
And the industry’s labor unions may see diminishing bargaining power, or at least limited power, as membership numbers drop.
Rail retirement benefits are paid under a program that started in the 1930s. It’s older than Social Security, yet unlike Social Security, the RRB is planning to offset some of the additional costs of the changes by investing some of the RRB funds ($15.6 billion) in potentially more lucrative stocks and bonds.
The Association of American Railroads lobbied for the bill for more than a year on behalf of the railroads. But railroad organization spokesman Tom White referred questions about it to the Retirement Board.
The railroads stand to gain plenty from the benefit changes. Their longtime, higher-paid employees will be off the payroll, and the jobs — if they are filled at all — will be filled by new workers who don’t receive full pay during their first two years on the job.
In Jacksonville, at least 30 CSXT workers in the 700-member Transportation and Communications Union local have retired since last month. The company said it would fill only 10 of the vacated jobs, Local 697 president Tim Leahy said.
Leahy also said CSXT is subcontracting some of the jobs to non-union workers and expecting the remaining union workers to take up the slack of other unfilled jobs.
“They want us to absorb the work,” he said. “Over the years we’ve been doing that, but how much can you absorb?”
The union’s local is expected to lose more than 10 percent of its 700 members this year alone, Leahy said. “For the most part, those eligible to go just jumped out of here,” he said.
CSXT spokeswoman Kathy Burns said the decision to fill vacated jobs will be determined on a departmental basis. She said the company doesn’t have any idea how many of CSXT’s workers will retire this year, but it’s expected that the retirees will be mostly union workers because CSXT offered its non-union managers early out packages in 1999.
Burns said the railroad doesn’t contract out union jobs. She was unsure how much money CSXT will save with the changes.
One-fourth of CSXT’s employees are 55 or older, Burns said, and the railroad would have experienced a surge of retirements whether the benefits change happened or not.
“Regardless, over the next 10 years we’re going to see increased retirements,” Burns said. “This is only a two-year difference.”
Although the stock market has been volatile during the last year, White said the Association of American Railroads isn’t considering the possibility that the Retirement Board could lose money by investing in stocks.
“I haven’t heard any concerns in that respect,” he said. The railroads’ bigger concern could be the nearly 3 percent employer tax decrease that they could receive. A lower percentage of required contributions could save the railroads $300 million a year.
“That’s something the railroads are excited about, and rightfully so,” said Barton Jennings, a professor of transportation and logistics at the University of Tennessee.
The 3 percent decrease is projected by CSXT to save the company $150 million during the first three years, Burns said.
The railroad fund, just like Social Security, is facing the challenge of having more beneficiaries than contributors as the nation’s labor force demographics continue to shift. At least one industry analyst said the benefit changes combined with unfilled jobs may worsen that situation in the railroad fund. Still, those issues are mostly lost on the average railroader.
Jacksonville’s Frank Large, a supervisor of Amtrak engineers, said after 24 years of railroading, a two-year cut to the retirement requirement will make a big difference.
“I can see a glimmer at the end of the tunnel, but not the light,” he said. “Six years, I feel like I can handle that. I think it’s great.”
DeVries, a former RRB administrator, has already worked with 15 railroaders on their retirement plans, most of them CSXT employees. She recommends they not confuse financial factors with emotional considerations.
“Look, you worked 30 years, you may be retired 30 years,” DeVries said. The lack of retroactivity has been the most common concern of railroaders, RRB spokesman Bill Poulos said.
“There were people who retired a couple of years ago who wish it applied to them,” he said. But it doesn’t, and there’s the rub.
Carl Gambrell, a CSXT employee who retired in August 1999 after working 42 years for CSXT and its predecessors, accepted a severance package 11 months before his 62nd birthday and took a 20 percent cut in monthly benefits.
He was unaware that changes to the retirement age were being considered and is now unsure if he would have done anything differently had he known about the potential change. Regardless, having a choice would have been nice.
“If I’m unhappy with anyone, it’s Congress and the senators who with a stroke of a pen would do that and not make it retroactive to people who had worked 30 or 40 years,” said.
For Large, the prospect of retiring earlier than expected means more time to spend on the boat he plans to sail to the Bahamas or Mexico.
“To retire earlier is absolutely wonderful,” he said. “There are a lot of people who are going to benefit from this.”