NCPA - National Center for Policy Analysis

Critics Warn Railroad Pension Bill Will Be a Taxpayer-Financed Bailout

December 3, 2001

The railroad pension bill -- already passed by the House -- has one good feature, say experts on Social Security. It would invest about $15 billion of the fund in the stock market, a step which Social Security privatization proponents have proposed -- but would not establish individual accounts. However, there are problems with the bill.

  • For railroad employees, who pay into the railroad fund rather than Social Security, the bill provides an increase in benefits for surviving spouses, lowering of the retirement age from 62 to 60, faster vesting and repeal of the limit on the maximum benefit.
  • For railroad employers, the bill allows a reduction in payroll taxes.
  • But since there are now three beneficiaries for each worker, the pension fund is paying out more than it is taking in -- and the shortfall is being made up by funds from Social Security and general federal revenues.
  • Experts predict that if the current bill becomes law, the increased benefits will bankrupt the system -- and American taxpayers will be on the hook for billions of dollars to bail it out.

Critics are also concerned that the stock investments mean the government would have an ownership stake in private firms -- thus giving it more leverage over American companies.

Source: Editorial, "Derail This Bailout," Wall Street Journal, December 3, 2001.


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