Need for Appropriating Additional Funds To Finance Railroad Retirement "Windfall" Benefits

HRD-79-33: Published: Jan 11, 1979. Publicly Released: Jan 18, 1979.

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The Railroad Retirement Act of 1974 created the so-called windfall benefits. After 1974 individuals could no longer qualify for separate full benefits from the social security and railroad retirement programs that, in total, were larger than benefits they would have earned had all their earnings been credited to only one program. The amount of windfall is intended to reflect the excess benefits payable to railroad retirees because their employment was split between railroad and nonrailroad service. Windfall is equal to the social security formula applied against social security earnings, plus the formula applied against railroad earnings, less the formula applied against combined earnings under both systems. Variations of these calculations are used to compute spouse and surviving spouse windfall benefits. GAO reviewed the Railroad Retirement Board's calculations of the annual appropriation necessary to phase out the windfall appropriation. Projected windfall costs and alternate methods of financing were identified by GAO. Estimates showed that using the present method, 21 level appropriations of $415 million beginning in 1980 would be needed to pay future windfall benefits and amortize the $748 million negative balance. An alternate method of funding windfall benefits from general revenue appropriations is available. The present method, a series of actuarially calculated level annual payments, could be replaced by a pay-as- you-go cash approach. The latter method would result in slightly higher initial payments. How long this would last depends on the period over which the present negative balance would be amortized. The cash method of funding would eliminate the need for actuarial approximations, with their associated uncertainty, and would result in a slower outflow of general revenue appropriations.

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