Delays in Receiving and Investing Taxes Are Reducing Railroad Retirement Program Interest Income

HRD-81-112: Published: Sep 24, 1981. Publicly Released: Sep 24, 1981.

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GAO had previously determined that the Railroad Retirement Board could earn a significant amount of extra interest income for its retirement program if railroad employers were required to make more frequent deposits of retirement tax contributions and if such contributions were transferred from the Department of the Treasury to the Board in a more time-saving manner. The additional income would result from the tax contributions being available to the Board for earlier investment.

If Treasury's requirements for the deposit of railroad retirement taxes had been the same as those for the deposit of social security taxes by nonrailroad employers covered under social security, the Board could have earned additional interest income of approximately $18 million in fiscal year 1980. Further, the Board could have earned about $7 million in additional interest income for that year if railroad employers' retirement tax contributions had been invested within 1 day after deposit rather than the 6 to 14 calendar days it now takes to invest these funds. The amount of additional interest income gained in the future by requiring such changes will vary depending on the contribution rate, the contribution base, the prevailing interest rate, and the actual date of deposit. In order for the Board to earn additional income from more frequent deposits of retirement tax contributions, Treasury's regulations for collecting such taxes would have to be amended. Amending the regulations to place railroad employers on the same tax deposit timetable as nonrailroad employers would also have the effect of placing railroad retirement tax deposits on the same basis as currently required of railroad and nonrailroad employers for deposit of withheld Federal income taxes. Because of the retirement program's financial problems over the years, GAO believes that such a change is justified because it would maximize the Board's interest income and improve its cash flow while placing railroad employers on the same deposit timetable as nonrailroad employers.

Recommendations for Executive Action

  1. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of the Treasury should direct IRS to require railroad employers to deposit railroad retirement taxes as frequently as nonrailroad employers are required to deposit social security taxes.

    Agency Affected: Department of the Treasury

  2. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of the Treasury and the Railroad Retirement Board should examine the causes of delay in transferring railroad retirement tax deposits from Treasury to the Railroad Retirement Account, identify what alternatives exist for prompt transfer of railroad retirement taxes to the Account, and decide the best way to insure that the Account will earn interest on the taxes as soon as they have been deposited with Treasury.

    Agency Affected: Department of the Treasury

  3. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of the Treasury and the Railroad Retirement Board should examine the causes of delay in transferring railroad retirement tax deposits from Treasury to the Railroad Retirement Account, identify what alternatives exist for prompt transfer of railroad retirement taxes to the Account, and decide the best way to insure that the Account will earn interest on the taxes as soon as they have been deposited with Treasury.

    Agency Affected: Railroad Retirement Board

 

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