NCPA - National Center for Policy Analysis

Railroad Retirement Investment Threatens Social Security Reform

October 5, 2000

At the time of Social Security's inception, the large and politically powerful railroad unions were able to get their workers covered by a federal retirement system separate from Social Security, with its own trust fund and governing board. But now, the Railroad Retirement system is in trouble because the number of retirees collecting benefits is still growing -- while the number of active railroad workers is only a fraction of its peak in the heyday of train transport.

Experts say the financial condition of the Railroad Retirement system presages the coming impasse faced by the Social Security system due to the falling ratio of workers to beneficiaries in the U.S.

The answer Congress has come up with is -- to add new benefits:

  • Benefits for surviving spouses of deceased workers would be increased from 50 percent of the deceased worker's benefit to 100 percent.
  • The vesting period for retirement benefits would be decreased from 10 years to 5 years.
  • The retirement age would be reduced from 62 -- which is the earliest age for receiving Social Security retirement benefits -- to 60.

More importantly the proposed Railroad Retirement and Survivors' Improvement Act (H.R. 4844) would create a board that would invest the estimated $18.5 billion trust fund in the stock market to get better returns -- a move that has been suggested to shore up Social Security.

Critics say that allowing political appointees and government bureaucrats to control money in the stock market would lead to political manipulation of the investments and of private companies. Applying the same scheme to Social Security would result in the government owning a large part of the economy.

Source: David C. John, "How Railroad Investment Scheme Threatens Social Security Reform," Executive Memorandum No. 698, October 4, 2000, Heritage Foundation, 214 Massachusetts Ave., N.E., Washington, D.C., (202) 546-4400.

 

Browse more articles on Tax and Spending Issues