Information on Railroad Retirement

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Employees who worked for the railroad system take advantage of a retirement system that is designed only for them. Instead of paying into Social Security like most other people in the United States, railroad employees pay into a separate system that was developed in the 1930s. While this program is similar to Social Security, it carries with it a few differences.

Formation of Railroad Retirement

  • In the early 1900s, the railroad system was thriving, but many of the employees who retired from this system had retirement benefits that were lacking. The employees of these companies received pensions that were sometimes underfunded and could be subject to problems. Because of these issues, the government created a system that would pay for the retirement of railroad employees. The Railroad Retirement Act was passed in 1937 and it put into effect the retirement system that railroad employees still use today.

Paying Taxes and Eligibility

  • The Railroad Retirement program is funded in much the same way as the Social Security system in the United States. With the Railroad Retirement system, railroad employees must pay taxes into the general Railroad Retirement fund. This money comes directly out of their paycheck and is put into the fund. Before an employee can become eligible for benefits from the Railroads Retirement program, he must work for the railroad for at least 10 years. At that point, he will become vested in the retirement plan and can receive benefits once he reaches retirement age.

Basic Benefits

  • With the Railroad Retirement system, employees are entitled to basic retirement benefits that are very similar to the benefits that an individual would receive through Social Security. Besides these retirement benefits, the Railroad Retirement system also provides benefits for disabled individuals. This system also has a component that pays money to the spouses of railroad employees. If the railroad employee passes away, this program can also provide survivor benefits to his spouse and his children, in some cases.

Tier II Benefits

  • One of the ways in which the Railroad Retirement system varies greatly from Social Security is that it provides a second tier of benefits. With this part of the program, railroad employees can receive a monthly benefit that is similar to a pension plan. This is comparable to a defined benefit plan in which the monthly benefit is based on the average earnings of the worker over his working career. This helps provide additional security during retirement years.

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