WASHINGTON — Thousands of American railroaders will receive improved retirement benefits under legislation approved Wednesday by the Senate, the Omaha World-Herald reports.
On a 90-9 vote, senators approved a railroad retirement bill to allow rail companies and labor unions to shift about $15 billion in federally held bonds to Wall Street.
The result, say rail executives and labor leaders, will be better investment returns, allowing lower retirement ages, higher pensions for railroad widows and lower payroll taxes for rail companies.
Advocates say the changes will benefit 250,000 rail employees nationwide, including about 40,000 Nebraskans and Iowans who work for the Union Pacific Railroad and Burlington Northern Santa Fe Corp.
President Bush is expected to sign the bill into law this month. The House, which voted overwhelmingly in favor of the bill this summer, plans to cast one last procedural vote next week.
Wednesday’s vote was a decisive victory for a years-long effort by rail companies and union leaders to rewrite the rules for a retirement system that was created during the Great Depression. Under the new law, a six-member board of trustees will oversee the reinvestment of about $15 billion now held in U.S. Treasury bonds.
Barring unexpected setbacks, rail employees should see the following benefits early in 2001:
Employees with 30 years of service will be eligible for full retirement benefits at age 60, down from age 62 now.
Widows of railroad workers will receive monthly payments roughly equal to 100 percent of their spouses’ salaries, up from about 50 percent. The higher payouts primarily will benefit those who have been widows fewer than seven or eight years.
Younger employees will be vested after 5 years, down from 10 years under current law.
The Senate approved the new retirement system despite staunch opposition from Sens. Phil Gramm, R-Texas, and Don Nickles, R-Okla.
Gramm, the ranking Republican on the Senate Banking Committee, repeatedly accused railroads and unions of trying to “pilfer” $15 billion in federal tax dollars for their own benefit. Gramm said taxpayers will wind up bailing out the system if the rail industry collapses or if the Wall Street investments don’t live up to expectations.
Under current law, railroad retirement is broken into two tiers: The first tier, funded by a 15 percent payroll tax split between employer and employee, allows rail workers to collect from Social Security like any other American.
The bill approved Wednesday will affect the second tier of railroad retirement, which functions much like a pension fund. This portion of the system is funded by a 21 percent payroll tax, with rail companies contributing 16.1 percent and employees paying 4.9 percent.
Under the new law, $15 billion accumulated from the tier 2 payroll taxes will be reinvested. Railroads could see their tax rate cut to 13.1 percent by Jan. 1, 2004, but only if the retirement fund earns enough to sustain at least four years’ worth of benefits, according to officials with the Railroad Retirement Board in Washington.
Employees will never have to pay more than their current 4.9 percent payroll tax.
Proponents of the new system note that if the fund loses money, railroads will be required to pay higher payroll taxes to fix the problem.