B-229738, Mar 28, 1988

B-229738, Mar 28, 1988

APPROPRIATIONS/FINANCIAL MANAGEMENT - Budget Process - Budget Restrictions - Pensions - Supplemental Annuities - Statutory Exemptions DIGEST: Railroad Supplemental Annuity Pension Fund is included in "tier II" of Railroad Retirement system, and should have been exempt from sequestration for that reason in addition to the reasons detailed in GAO's compliance report, "Deficit Reductions for Fiscal Year 1988, Compliance With the Balanced Budget and Emergency Deficit Control Act of 1985," GAO/OCG-88-1, B-221498, Dec. 15, 1987. The codification in Public Law 100-119, of an earlier exemption for railroad retirement tier II was intended to include the Supplemental Annuity Pension Fund, and the legislative history of the Railroad Retirement Act of 1974 classifies supplemental annuities as part of the package of benefits collectively called "tier II." Since the Fund is a part of "tier II," the change in account number does not affect its exempt status, because all budget reference numbers used in the Act are keyed to the Fiscal Year 1986 Budget Appendix.

The Honorable R. A. Gielow, Ghairman, Railroad Retirement Board:

By letter dated December 2, 1987, the Secretary to the Board requested our opinion on the President's final order under the Balanced Budget and Emergency Deficit Control Act of 1985 Pub. L . No. 99-177, as amended by, Pub. L. No. 100119, 101 Stat. 754, sequestering a portion of the Railroad Supplemental Annuity Pension Fund. The Board maintains that the Fund is exempt from sequestration. We agree. We addressed this issue in our report, "Deficit Reductions for Fiscal Year 1988, Compliance With the Balanced Budget and Emergency Deficit Control Act of 1985," GAO/OCG-88-1, B-221498, Dec. 15, 1987.

As you know the President's final sequestration order for Fiscal Year 1988 was rescinded by section 1 of Public Law 100-202. However, because this issue may be raised again in future years, we are enclosing a staff paper which analyzes the issues more fully than was possible in our report. We hope it will be useful to you. Additionally, we are providing a copy of this letter to Representatives Fazio, Hoyer, and Dicks, who also inquired about Supplemental Annuities.

Enclosure

ANALYSIS OF SEQUESTERABILITY OF

RAILROAD RETIREMENT SUPPLEMENTAL ANNUITIES

History of Account's Exempt Status

In Public Law 99-177, the Balanced Budget and Emergency Deficit Control Act of 1985, "Railroad retirement tier II (60-8011-0-7-601)" was listed in section 257(1)(A) among those federally administered retirement and disability programs whose automatic spending increases (commonly called COLAs) were identified as sequesterable.

Then, in October 1986, Congress completely exempted from sequestration the COLAs of all the federal retirement and disability programs listed in section 257(1)(A). The Omnibus Reconciliation Act of 1986 ("Reconciliation Act") provided:

"Benefits which are payable in calendar year 1987, 1988, 1989, 1990, or 1991 under programs listed in section 257(1)(A) of the Balanced Budget and Emergency Deficit Control Act of 1985 (Public Law 99-177), including any cost-of-living-adjustment in such benefits, shall not be subject to modification, suspension, or reduction in such calendar year pursuant to a Presidential order issued under such Act."

Pub. L. No. 99-509, sec. 7001, 100 Stat. 1874, 1948. This provision in the Reconciliation Act did not amend Public Law 99-177. The Office of Management and Budget included Supplemental Annuities as exempt in the first sequestration report for Fiscal Year 1988, prepared in August 1987 pursuant to the original Public Law 99-177 in apparent reliance on the Reconciliation Act exemption.

Thereafter, in September 1987, Congress enacted the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987, Public Law 100 119, 101 Stat. 754 ("Reaffirmation Act"). In the Reaffirmation Act, Congress codified and consolidated all the exemptions created since passage of Public Law 99-177 in December 1985. This was accomplished in section 104(b) of Pub. L. No. 100-119, captioned "Amendments To Specifically Include In This Act Exemptions Enacted Since 1985." In subparagraph (3) of that section, the full list of programs that had originally appeared in section 257(1)(A) of Public Law 99-177 was set out as an amendment in the form of an addition to the list of budget accounts and activities exempt from reduction contained in section 255(g)(1) of Public Law 99-177. The amending language reproduced verbatim the list in former section 257(1)(A), including the item "Railroad retirement tier II (60-8011-0-7- 601)." /1/

At this point, OMB decided that Supplemental Annuities had become sequesterable because in the Budget for Fiscal Year 1988 (published in January 1987, after enactment of the Reconciliation Act) OMB moved the Supplemental Annuity Pension Fund out of budget account 60-8011-0-1 601, captioned "Rail Industry Pension Fund" in the Budget, and into its own Budget account captioned "Supplemental Annuity Pension Fund" under a new number, 60-8012-0-7-602. Since the Reaffirmation Act referenced the old account number for the Rail Industry Pension Fund (characterized in Public Law 99-177 and subsequent amendments as "Railroad retirement tier II"), OMB concluded in its second set of Fiscal Year 1988 sequestration reports, published in October and November 1988, that the Supplemental Annuity Pension Fund was not included in the exemption newly codified in the Reaffirmation Act for "Railroad retirement tier II (60-80110-1-601)."

OMB explained its decision to classify the new account for the Supplemental Annuity Pension Fund as sequesterable in Fiscal Year 1988 in the following footnote: /2/

"Congress did not explicitly exempt this account. Supplemental Annuities were not sequestered in previous fiscal years because the supplemental annuity account had been merged with the Rail Industry Pension Fund for presentation purposes."

OMB's action was predicated on the assumption that Supplemental Annuities are not a part of "Railroad retirement tier II." Thus, OMB apparently reasoned that Supplemental Annuities had been initially included in the exemption granted in 1986 by the Reconciliation Act solely because the Supplemental Annuity Pension Fund was subsumed in the referenced Budget account, and not because they are a part of "tier II." According to that analysis, when the accounts were split the only link to the exemption was disconnected.

We disagree with OMB's interpretation for two reasons. First, Supplemental Annuities are included in the exemption under the Reconciliation Act, codified by the Reaffirmation Act, and second, Supplemental Annuities have consistently been treated by the Congress as a part of "tier II."

Public Law 100-119 Exempted Supplemental Annuities

In our view, the language of the Reconciliation Act exempting the COLA's of all the programs listed in section 257(1)(A) of Public Law 99 177 is clear on its face. In addition, the legislative history of the provision makes it plain that Congress intended to put all federally managed retirement and disability programs on a par with Social Security and tier I of Railroad retirement which were totally exempt from sequestration under section 255 of Public Law 99-177. The Conference Report explained the Reconciliation Act provision as follows:

"Section 1203 would exempt the COLA increases of all federal government civilian and military disability and retirement programs from GrammRudman- Hollings sequestration cuts, thereby guaranteeing them the same treatment under this law that recipients of Social Security benefits presently enjoy.

H. R. Rep. No. 1012, 99th Cong., 2d Sess. 262 (1986).

Further evidence of congressional intent to exempt all retirement and disability programs is found in the fact that the Reconciliation Act also contained a separate provision amending Public Law 99-177 to add to the list of exempt programs another railroad retirement benefit program, the "Dual benefits payments account (60-0111-0-1-601)." Dual benefits were not covered by language exempting, "benefits ... payable ... under programs listed in section 257(1)(A). ..." because the Dual Benefits program does not have an automatic spending increase, and thus was not originally listed in section 257(1)(A).

The plain language of the Reaffirmation Act made clear the intent to preserve previously enacted exemptions, but additionally the Conference Report on the Act explained:

"The conferees are including these programs i.e., the accounts exempted by virtue of later enactments in the text of the Balanced Budget and Emergency Deficit Control Act of 1985 in order to insure that there is no possibility of construing the amendments made by this Act i.e., the reaffirmation Act as in any way affecting those provisions."

H. R. Rep. No. 313, 100th Cong., 1st Sess. 61.

As we see it, this establishes beyond any doubt that Congress intended to preserve the status quo of the exemption prior to enactment of the Reaffirmation Act. Since OMB conceded that the Supplemental Annuity Pension Fund was exempt under the prior law, it was inappropriate, in view of the clear legislative intent, to change the Fund's exempt status on the basis of a technicality in switching budget accounts.

Supplemental Annuities Are Tier II

In addition to out interpretation of the effect of the Reconciliation and Reaffirmation Acts, it is clear that Supplemental Annuities are among the benefits intended by the Congress to be included in "Railroad retirement tier II." The term "tier II" is not mentioned in the railroad retirement law itself. Pub. L. No. 93-445, 88 Stat. 1305-61, codified at, 45 U.S.C. Secs. 231-231v (1982). Also, it is not defined in the Railroad Retirement board's regulations, 20 C.F.R. Parts 200-399, and has never been clarified by the courts.

However, the term "tier II" was used in the legislative history of Public Law 93-445, the Railroad Retirement Act of 1974. In the reports and floor debate on that Act, the Committees and members used the term "tier II" to describe the bundle of benefits provided over and above a basic Social Security component (commonly referred to as "tier I")

A diagram printed in both the House and Senate Reports on the 1974 legislation demonstrates graphically that Supplemental Annuities were included in "tier II." H. R. Rep. No. 1345, and S. Rep. No. 1163, 93d Cong., 2d Sess. 21 (1974). We have reproduced that chart on page 6 of this analysis.

Congress coined the term "tier II" in 1974, and used that term routinely to describe a specific package of railroad retirement benefits, including Supplemental Annuities. Therefore, when Congress used the same term in Public Law 99-177 and again in the Reaffirmation Act, it could only have intended the term "tier II" to convey the customary meaning.

The fact that Supplemental Annuities are now listed for budget presentation purposes under a new account number does not change our conclusion. Section 255(i) of Public Law 99177 fixed budget account references for exempt accounts in sections 255(g) and (h) to the Fiscal Year 1986 Budget. As previously stated, federally administered retirement and disability programs previously listed in section 257(1)(A) of Public Law 99-177, including "Railroad retirement tier II," are now exempt under section 255(g). Section 257(1) also contains a provision fixing budget account references in that section (where "Railroad retirement tier II" originally appeared) to the Fiscal Year 1986 Budget. Neither of these provisions was amended by the Reaffirmation Act. The clear effect of these two provisions is to preclude the inadvertent change of a program from statutorily exempt to sequesterable as a result of an administrative change in the account numbers.

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/1/ As a conforming amendment, the Reaffirmation Act also struck subparagraph (1)(A) of section 257 of the original Act. Pub. L. No. 100- 119, Sec. 104(c)(2).

/2/ 52 Fed. Reg. 39410, 39450, note 21, October 21, 1987. Earlier, in its August 20, 1987 report prepared under the original Act, as amended by the Reconciliation Act, OMB had exempted the Supplemental Annuity Pension Fund. 52 Fed.Reg. 31530.