WASHINGTON, D.C. — The Senate voted overwhelmingly yesterday to allow the $15.3 billion railroad retirement system to invest in the stock market for the first time, clearing the way for final approval of the legislation despite controversy over its potential cost to taxpayers, the Washington Post reports.
The bill, which would also increase benefits and cut company taxes, was approved 90 to 9 after passing the House by a similarly lopsided majority this summer, propelled by a heavy lobbying campaign by rail industry, labor and retiree groups.
The railroad retirement system, which predated Social Security, was designed to ensure the survival of the nation’s rail system and its workers during the Great Depression. It is funded by companies and their employees but invests only in government bonds under rules prescribed by Congress. As the industry and its workforce shrank over the years, strains on the retirement fund mounted.
The idea behind the legislation is to ensure the fund’s solvency for nearly 1 million workers, retirees and their families while increasing benefits and cutting costs by moving to private-sector investments that provide a better return. But critics argue that it is based on budget gimmickry and a shaky financial foundation that could ultimately force a costly bailout by taxpayers.
The bill will be a boon to railroads and their unions but “nobody cares, apparently, about the taxpayer or the future of this retirement program,” said Sen. Phil Gramm (R-Tex.). Supporters contended the new system would protect taxpayers at least as well as the old one, and Sen. Thomas R. Carper (D-Del.) said railroads were asking for no more flexibility in investments than other retirement systems.
The legislation is identical to a bill approved in July by the House, but because of procedural complications it will have to be passed again by that chamber, probably in a matter of days, before it goes to President Bush.
The administration had earlier expressed misgivings about the bill, but Senate Majority Leader Thomas A. Daschle (D-S.D.) said he expects Bush to sign it. Both chambers demonstrated there are more than enough votes to override a veto, Daschle noted.
The bill would transfer railroad retirement assets, now held by the U.S. Treasury, to a board jointly selected by management and labor that could invest in corporate stocks and bonds. A different part of the fund that provides basic benefits similar to Social Security would remain in government bonds.
Relying on a new infusion of money from the stock market, the bill would also substantially reduce company payroll taxes while allowing workers to retire at 60 instead of 62 and to be vested for pensions after five instead of 10 years. A benefit for surviving spouses would be increased, and a cap on benefits would be lifted.
In case of a shortfall, company taxes would be increased, but taxpayers could be called upon to pay benefits if the fund goes broke.
In addition to their complaints about taxpayer liability, critics complained that the bill’s drafters had cut budget corners to ease the way for its passage.