Computing Employee, Spouse, and Divorced Spouse Annuities

RAILROAD RETIREMENT BOARD

20 CFR Parts 226 and 232

RIN 3220-AA58

Computing Employee, Spouse, and Divorced Spouse Annuities

AGENCY: Railroad Retirement Board.

ACTION: Final rule.

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SUMMARY: The Railroad Retirement Board (Board) hereby revises its

regulations dealing with the computation of retirement annuities under

the Railroad Retirement Act of 1974 (Act). The regulations regarding

the computation of these annuities, which are being replaced, were

promulgated under the Railroad Retirement Act of 1937 and no longer

reflect the computational provisions contained in the Act.

EFFECTIVE DATE: May 5, 1995.

ADDRESSES: Secretary to the Board, Railroad Retirement Board, 844 North

Rush Street, Chicago, Illinois 60611.

FOR FURTHER INFORMATION CONTACT: Thomas W. Sadler, Assistant General

Counsel, Railroad Retirement Board, 844 North Rush Street, Chicago,

Illinois 60611, telephone (312) 751-4513, TTD (312) 751-4701.

SUPPLEMENTARY INFORMATION: The revision to part 226 (formerly

``Computation of Annuity'') provides the rules for computing the amount

of the employee, spouse and divorced spouse annuity, under the Railroad

Retirement Act of 1974. In general, the annuity consists of two

components or tiers. The first tier (tier I) is a social security level

benefit that is computed under social security rules based on the

employee's earnings under both the railroad retirement and the social

security systems and is reduced by the amount of any social security

benefit payable. The second tier (tier II) is based solely on the

employee's railroad earnings.

In limited circumstances the employee annuity may be increased by a

``vested dual benefit''. An employee who has completed 25 years of

railroad service may also be eligible for a supplemental annuity.

The rule is divided into seven (7) subparts:

Subpart A sets forth definitions and lists other regulations

related to this part.

Subpart B describes the computation of the employee annuity which

includes the social security level component (tier I) (Sec. 226.10),

the component based solely on railroad service (tier II) (Sec. 226.11);

the vested dual benefit (Sec. 226.12), and a supplemental annuity

(Sec. 226.16). Section 226.13 describes how cost-of-living increases

apply to the annuity.

Subpart C (Secs. 226.30-226.35) parallels subpart B and describes

the computation of the spouse and divorced spouse annuities. However,

the divorced spouse is not entitled to a tier II benefit and no

supplemental annuity or vested dual benefits are payable to spouses.

Section 226.31 explains how the spouse and divorced spouse annuity are

reduced due to receipt of a public pension which was not based upon

employment covered by the Social Security Act on the last day of

employment.

Subpart D (Secs. 226.50-226.52) describes the Railroad Retirement

Family Maximum which is a statutory ``cap'' placed upon the total

benefits payable under the RRA. Section 226.51 describes how the

maximum is determined (the higher of $1,200 or an amount based upon the

employee's final average monthly compensation (FAMC)). Section 226.52

describes how the ``reduction amount'' is computed when the maximum is

exceeded and Sec. 226.50 describes how the spouse, then the employee

annuity is reduced until the total employee and spouse annuity equal

the maximum. The railroad retirement maximum is computed at the

employee's annuity beginning date but will be recomputed if the spouse

later divorces the employee or the employee later becomes entitled to a

vested dual benefit or supplemental annuity. A divorced spouse annuity

is not counted in determining whether the RRA maximum is exceeded.

Subpart E (Secs. 226.60-226.63) explains how years of service and

average monthly compensation (AMC) are determined. The tier II of the

employee annuity is seven tenths of 1% (.007) times the product of an

employee's years of service times his or her AMC. The spouse's tier II

is 45% of the employee's tier II. See Secs. 226.11 and 226.32.

Subpart F (Secs. 226.70-226.74) describes the reduction required

due to receipt of workers' compensation benefits. The tier I of an

employee, spouse, or divorced spouse annuity is reduced if the employee

is under age 65 and is entitled to a disability annuity and another

periodic benefit based upon disability pursuant to some other Federal

or state law or plan (Sec. 226.70). The reduction amount is first

applied to the tier I of any spouse or divorced spouse annuity payable,

then to the employee tier I (Sec. 226.71). Certain disability payments

do not cause a reduction. These are listed in Sec. 226.72.

The formula for the reduction amount is found at Sec. 226.71. The

reduction provided for in this part applies if the total tier I

components payable to the employee and spouse (or divorced spouse) plus

workers' compensation or public disability benefit exceed 80% of the

employee's prior average current earnings. Section 226.73 explains what

events cause a change in the reduction amount. Section 226.74 provides

that ``average current earnings'' must be recomputed periodically to

take into account inflation. The redetermined average current earnings

are used only if it results in a lower reduction amount.

Subpart G of the rule (Secs. 226.90-226.92) explains how and when

an annuity is recomputed to take into account railroad service and

social security earnings after an annuitant retires.

PART 232--SPOUSES' ANNUITIES is obsolete and is removed.

On February 9, 1995, the Board published this rule as a proposed

rule (60 FR 7729), inviting comments on or before March 13, 1995. No

comments were received.

The Board, in conjunction with the Office of Management and Budget,

has determined that this is not a significant regulatory action under

Executive Order 12866; therefore, no regulatory impact analysis is

required. There are no information collections associated with this

rule. [[Page 22262]]

List of Subjects in 20 CFR Part 226 and Part 232

Pensions, Railroad employees, Railroad retirement.

1. For the reasons set out in the preamble, part 226 of title 20 of

the Code of Federal Regulations (formerly ``Computation of Annuity'')

is revised as follows:

PART 226--COMPUTING EMPLOYEE, SPOUSE, AND DIVORCED SPOUSE ANNUITIES

Subpart A--General

Sec.

226.1 Introduction.

226.2 Definitions.

226.3 Other regulations related to this part.

Subpart B--Computing An Employee Annuity

226.10 Employee tier I.

226.11 Employee tier II.

226.12 Employee vested dual benefit.

226.13 Cost-of-living increase in employee vested dual benefit.

226.14 Employee regular annuity rate.

226.15 Deductions from employee regular annuity rate.

226.16 Supplemental annuity.

Subpart C--Computing a Spouse or Divorced Spouse Annuity

226.30 Spouse or divorced spouse tier I.

226.31 Reduction for public pension.

226.32 Spouse tier II.

226.33 Spouse regular annuity rate.

226.34 Divorced spouse regular annuity rate.

226.35 Deductions from regular annuity rate.

Subpart D--Railroad Retirement Family Maximum

226.50 General.

226.51 Maximum monthly amount.

226.52 Total annuity subject to maximum.

Subpart E--Years of Service and Average Monthly Compensation

226.60 General.

226.61 Use of military service.

226.62 Computing the average monthly compensation.

226.63 Determining monthly compensation.

Subpart F--Reduction for Workers' Compensation and Disability Benefits

Under a Federal, State, or Local Law or Plan

226.70 General.

226.71 Initial reduction.

226.72 Benefits that do not cause a reduction.

226.73 Changes in reduction amount.

226.74 Redetermination of reduction.

Subpart G--Recomputation To Include Additional Railroad Service and

Compensation

226.90 When recomputation applies.

226.91 How an employee annuity rate is recomputed.

226.92 Effect of recomputation on spouse and divorced spouse

annuity.

Authority: 45 U.S.C. 231f(b)(5).

Subpart A--General

Sec. 226.1 Introduction.

This part explains how employee, spouse, and divorced spouse

annuities are computed. It describes how to determine the years of

railroad service and average monthly compensation used in computing the

employee annuity rate. The railroad retirement family maximum, cost-of-

living increases, and the recomputation of an annuity to include

additional railroad earnings are also explained in this part.

Sec. 226.2 Definitions.

Except as otherwise expressly noted, as used in this part--

Annuity means a payment due an entitled individual for a calendar

month and payable to him or her on the first day of the following

month.

Eligible means that an individual meets all the requirements for

payment of an annuity but has not yet applied for one.

Employee means an individual who is or has been in the service of

an employer as defined in part 202 of this chapter.

Entitled means that an individual has applied for and has

established his or her rights to benefits.

Railroad Retirement Act means the Railroad Retirement Act of 1974,

as amended.

Retirement age means, with respect to an employee, spouse or

divorced spouse who attains age 62 before January 1, 2000, age 65. For

an employee, spouse or divorced spouse who attains age 62 after

December 31, 1999, retirement age means the age provided for in section

216(l) of the Social Security Act.

Social Security Act means the Social Security Act as amended.

Sec. 226.3 Other regulations related to this part.

This part is closely related to part 216 of this chapter, which

describes when an employee, spouse, or divorced spouse is eligible for

an annuity, part 225 of this chapter, which explains the primary

insurance amounts (PIA's) used in computing the employee, spouse and

divorced spouse annuity rates, and part 229 of this chapter, which

describes when and how employee and spouse annuities can be increased

under the social security overall minimum. The creditable service and

compensation used in determining the years of service and average

monthly compensation are explained in parts 210 and 211 of this

chapter. The beginning and ending dates of annuities are explained in

part 218 of this chapter.

Subpart B--Computing an Employee Annuity

Sec. 226.10 Employee tier I.

Tier I of an employee annuity is an amount similar to the social

security benefit the employee would receive based on combined railroad

and social security earnings. The tier I benefit is computed as

follows:

(a) A tier I PIA is computed based on combined railroad and social

security earnings, as shown in Sec. 225.11 of this chapter. This PIA is

adjusted for any delayed retirement credits or cost-of-living

increases, as shown in subparts D and E of part 225 of this chapter,

and is reduced for receipt of a pension based upon non-covered service

in accordance with section 215(a)(7) of the Social Security Act. The

tier I of a disability annuity may also be adjusted for other benefits

based on disability, as shown in Secs. 226.70-226.74 of this part.

Except in the case of an employee who retires at age 60 with 30 years

of service, if the result is not a multiple of $1, it is rounded to the

next lower multiple of $1. In the case of an employee who retires with

an age reduced annuity based upon 30 years of service (see Sec. 216.31

of this chapter) the tier I is not rounded until all reductions have

been made.

(b) If the employee is entitled to a reduced age annuity (see

Sec. 216.31 of this chapter), the rate from paragraph (a) of this

section is multiplied by a fraction for each month the employee is

under retirement age on the annuity beginning date. The result is

subtracted from the rate in paragraph (a) of this section. At present

the fraction is \5/9\ of 1% (or \1/180\). If the employee retires

before age 62 with at least 30 years of service, the employee is deemed

age 62 for age reduction purposes and a 20% reduction is applied. This

reduction remains in effect until the first full month throughout which

the employee is age 62, at which time the tier I is recomputed to

reflect interim increases in the national wage levels and the age

reduction factor is recomputed, if necessary, in accordance with this

paragraph.

(c) The amount from paragraph (a) or (b) of this section is reduced

by the amount of any monthly benefit payable to the employee under

title II of the Social Security Act, including any social security

benefit payable under a totalization agreement between the Social

Security Administration and another country. The social security

benefit used to reduce the tier I may be an age or disability benefit

on the employee's own earnings record, a benefit based on the earnings

record of [[Page 22263]] another person, or the total of two types of

benefits. The amount of the social security benefit used to reduce tier

I is before any deduction for excess earnings. It is after any

reduction for other benefits based on disability. The result cannot be

less than zero.

(d) The tier I is subject to automatic annual increases as provided

for in subpart E of part 225 of this chapter.

Example: An employee born on November 3, 1919, becomes entitled

to an age annuity effective October 1, 1982. Retirement age for

individuals born in 1919 is age 65. He has less than 30 years of

service. His tier I PIA Is $712.60, which is rounded down to $712.

Since the employee is 25 months under age 65 when his annuity

begins, $712 is multiplied by \25/180\ (\1/180\ for each month under

age 65), to produce an age reduction of $98.89, and a tier I rate

after age reduction of $613.11. The employee is also entitled to a

social security benefit of $190 a month. The employee's final tier I

rate is $423.11.

Sec. 226.11 Employee tier II.

The tier II of an employee annuity is based only on railroad

service. For annuities awarded after September 1981, the tier II

benefit is computed as follows:

(a) The product obtained by multiplying the employee's creditable

years of service by the average monthly compensation, determined as

shown in subpart E of this part, is multiplied by seven-tenths of 1

percent (.007).

(b) If the employee is entitled to a vested dual benefit (see

Sec. 226.12 of this part), the result from paragraph (a) of this

section is reduced by 25 percent of the vested dual benefit amount.

This reduction is made before reduction of the tier II benefit for age.

The result cannot be less than zero.

(c) If the railroad retirement family maximum applies, as shown in

Secs. 226.50-226.52 of this part, the amount from paragraph (a) or (b)

of this section is reduced by the smaller of--

(1) The difference between the total railroad retirement maximum

reduction amount and the reductions in the spouse and supplemental

annuities; or

(2) The total tier II amount from paragraph (a) or (b) of this

section.

(d) If the employee is entitled to a reduced age annuity (see

Sec. 216.31 of this chapter), the rate from paragraph (a) through (c)

of this section is reduced in the same manner as the tier I as provided

for in Sec. 226.10 of this part. In the case of an employee with 30

years of service who is entitled to a reduced age annuity (see

Sec. 216.31 of this chapter), the age reduction only applies to the

tier I component; no age reduction applies to the tier II component.

(e) The total tier II amount (paragraphs (a) through (d) of this

section), is increased by 32.5 percent of the percentage increase in

the cost-of-living increase to the tier I annuity component. Each cost-

of-living increase is paid only to an employee whose annuity begins on

or before the effective date of the increase. The increases are

effective on the same date as any cost-of-living increase to the tier I

annuity component.

Sec. 226.12 Employee vested dual benefit.

(a) General. An employee vested dual benefit is payable, in

addition to tiers I and II, to an employee who meets one of the

following requirements:

(1) Employee worked in the railroad industry in 1974. An employee

who worked for a railroad in 1974 and retired after 1974 is considered

vested if on December 31, 1974, he or she had both 10 years of railroad

service and sufficient quarters of coverage under the Social Security

Act to qualify for a social security benefit. An employee qualified on

this basis is eligible for vested dual benefit amounts computed on his

or her railroad and social security credits through December 31, 1974.

(2) Employee who did not work for a railroad in 1974. An employee

who did not work in the railroad industry in 1974, but who had 25 or

more years of railroad service before 1975 or a current connection with

the railroad industry on December 31, 1974, as defined in part 216 of

this chapter, or a current connection when he or she retired, is also

considered vested under the same conditions as an employee who had

worked in the railroad industry in 1974.

(3) An employee who completed 10 years or more years of railroad

service (but less than 25) before 1975 but left the industry before

1975 and did not have a current connection on December 31, 1974 or when

he or she retired. Such an employee is considered vested only if he or

she had sufficient social security quarters of coverage to qualify for

a social security retirement benefit as of the end of the year prior to

1975 in which he or she left the railroad industry. The vested dual

benefit amount is based only on credits acquired through the last year

of pre-1975 railroad service instead of through December 31, 1974.

(b) Computation. The employee vested dual benefit is computed as

follows:

(1) The combined earnings dual benefit PIA is subtracted from the

total of the railroad earnings dual benefit PIA and the social security

earnings dual benefit PIA (see part 225 of this chapter for an

explanation of these PIA's).

(2) The result from paragraph (b)(l) of this section is adjusted

for any applicable cost-of-living increase, as shown in Sec. 226.13 of

this part.

(3) If the employee is entitled to a reduced age annuity (see

Sec. 216.1 of this chapter), the rate from paragraph (b)(2) of this

section is reduced in the same manner as the tier I as provided for in

Sec. 226.10 of this part. In the case of an employee with 30 years of

service who is entitled to an annuity reduced for age, the age

reduction applies only to the tier I component; no age reduction

applies to the vested dual benefit.

(4) The vested dual benefit payable in a given year may also be

reduced for insufficient funding as shown in part 233 of this chapter.

Example: An employee born on November 3, 1919, becomes entitled

to an annuity including a vested dual benefit on October 1, 1982.

His combined earnings dual benefit PIA is $254.90, his railroad

earnings dual benefit PIA is $93.80, and his social security

earnings dual benefit PIA is $244.70. The vested dual benefit before

cost-of-living increase is $83.60 ($93.80 + $244.70 -$254.90 =

$83.60). A cost-of-living increase of $67.72 (81 percent of $83.60.

See Sec. 226.13 of this part) results in a vested dual benefit of

$151.32. Retirement age for a person born in 1919 is age 65. Since

the employee is 25 months under age 65 when the annuity begins,

$151.32 is multiplied by 25/180, to produce an age reduction of

$21.02 and a vested dual benefit rate after age reduction of

$130.30.

Sec. 226.13 Cost-of-living increase in employee vested dual benefit.

If the employee's annuity begins June 1, 1975 or later, a cost-of-

living increase is added to the total vested dual benefit amount. This

increase is based on the cost-of-living increases in social security

benefits during the period from January 1, 1975, to the earlier of the

date the employee's annuity begins or January 1, 1982. The increases

are effective on June 1 of each year through 1981. The percentage

increase for annuities that begin June 1, 1981, or later is 81 percent.

Sec. 226.14 Employee regular annuity rate.

The regular annuity rate payable to the employee is the total of

the employee tier I, tier II, and vested dual benefit amounts, from

Secs. 226.10-226.12.

Sec. 226.15 Deductions from employee regular annuity rate.

The employee annuity as computed under this subpart may be reduced

by premiums required for supplemental medicare coverage, income tax

withholding, recovery of debts due the Federal government, garnishment

pursuant to part 350 of the chapter and [[Page 22264]] property awards

as provided for in part 295 of this chapter.

Sec. 226.16 Supplemental annuity.

A supplemental annuity is payable in addition to tiers I and II and

the vested dual benefit to an employee who meets the requirements of

Sec. 216.41 of this chapter. The supplemental annuity is equal to $23

plus $4 for each full year of service, over 25 years of service, up to

a maximum of $43. The supplemental annuity may be reduced by the

railroad retirement family maximum as shown in Secs. 226.50-226.52 of

this part, or for the receipt of a private pension benefit as explained

in part 227 of this chapter.

Subpart C--Computing a Spouse or Divorced Spouse Annuity

Sec. 226.30 Spouse or divorced spouse tier I.

(a) General. The tier I of a spouse or divorced spouse annuity is

an amount similar to the social security benefit the spouse or divorced

spouse would receive based on the employee's combined railroad and

social security earnings. In the case of an employee who retires before

age 62 with 30 years of service, the spouse tier I is simply 50% of the

employee tier I until the first month throughout which both the

employee and spouse are age 62 at which time the tier I is an amount

similar to the social security benefit on the employee's combined

railroad and social security earnings.

(b) Reduction for other disability benefits. The spouse or divorced

spouse tier I may be adjusted for other disability benefits received by

a disabled employee, as shown in Secs. 226.70-226.74 of this part.

(c) Reduction for government pension. The amount in paragraphs (a)

or (b) of this section is reduced (but not below zero) by the amount of

any government pension payable on the spouse's or divorced spouse's

earnings record, as described in Sec. 226.31 of this part.

(d) Rounding. The last tier I rate from paragraph (a), (b) or (c)

of this section, if not a multiple of $1, is rounded to the next lower

multiple of $1. However, in cases in which the spouse is in receipt of

an age reduced 60/30 annuity or in which the employee with 30 years of

service began a disability annuity July 1, 1984, or later, the spouse

tier I is not rounded until all reductions have been made. See

Sec. 226.10(a).

(e) Age reduction. If the spouse or divorced spouse is entitled to

a reduced age annuity (see Secs. 216.51 and 216.52 of this chapter),

the rounded tier I rate from paragraph (d) of this section is

multiplied by a fraction for each month the spouse or divorced spouse

is under retirement age on the date the annuity begins. The result is

subtracted from the rate from paragraph (d) of this section. At present

the fraction is 25/36 of 1% (or 1/144). In the case of an employee with

30 years of service who is awarded a disability annuity on July 1,

1984, or later, where the spouse does not have a child of the employee

under age 18 in care, the spouse tier I is reduced for each month the

spouse is under retirement age on the date the spouse annuity begins.

If the spouse is age 60 or 61, he or she is deemed to be age 62 for

purposes of the age reduction. The age reduction is applied before

reduction for a government pension.

(f) Reduction for social security benefit. The previous tier I

rate, from paragraph (d) or (e) of this section, is reduced by the

amount of any monthly benefit payable to the spouse or divorced spouse

under title II of the Social Security Act. The social security benefit

used to reduce tier I may be an age or disability benefit on the

spouse's or divorced spouse's own earnings record, a benefit based on

the earnings record of another person, or the total of two types of

benefits. The result cannot be less than zero.

(g) Reduction for employee annuity. If the spouse or divorced

spouse is entitled to an employee annuity on his or her own wage

record, the spouse or divorced spouse tier I is reduced for the

spouse's own employee annuity as follows:

(1) Spouse. If either the employee or the spouse had some railroad

service before 1975, the previous tier I rate from paragraphs (d)

through (f) of this section, whichever applies, is reduced (but not

below zero) by the spouse's own employee tier I rate, as computed under

Sec. 226.10 of this part. If both the employee and spouse began

railroad service after 1974, the spouse's total annuity rate, as shown

in Sec. 226.33, is reduced (but not below zero) by the spouse's own

employee total annuity rate, as shown in Sec. 226.14. These reductions

are effective from the later of the date the employee or spouse annuity

begins.

(2) Divorced spouse. The previous tier I rate from paragraphs (d)

through (f) of this section, whichever applies, is reduced (but not

below zero) by the divorced spouse's own employee total annuity rate as

shown in Sec. 226.14.

Example: The computation of the spouse tier I may be illustrated

as follows: A railroad employee's wife who was born on September 16,

1920 becomes entitled to a spouse annuity on October 1, 1982. She is

also entitled to a social security benefit of $190 a month effective

October 1, 1982. Her husband's employee tier I PIA is $712.60. The

spouse tier I is $356.30 (50 percent of $712.60). This is rounded

down to $356. Since she is 35 months under age 65, the present

retirement age when the annuity begins, $356 is multiplied by 35/

144, to produce an age reduction of $86.53 and a tier I rate after

age reduction of $269.47. Her final tier I rate effective October 1,

1982, after reduction for social security benefits, is $79.47

($269.47 -$190.00).

Sec. 226.31 Reduction for public pension.

(a) The tier I annuity component of an spouse/divorced spouse

annuity, as described in the preceding sections of this part, is

reduced if the spouse/divorced spouse is in receipt of a public

pension.

(b) When reduction is required. Unless the spouse or divorced

spouse annuity meets one of the exceptions in paragraph (d) of this

section, the tier I annuity component is reduced each month the

annuitant is receiving a monthly pension from a Federal, state, or

local government agency (government pension), but excluding a pension

paid by a government of a foreign country, for which he or she was

employed in work not covered by social security on the last day of such

employment. For purposes of this section, Federal government employees

are not considered to be covered by social security if they are covered

for Medicare but are not otherwise covered by social security.

(c) Payment in a lump sum. If the government pension is not paid

monthly or is paid in a lump-sum payment, the Board will determine how

much the pension would be if it were paid monthly and then reduce the

monthly railroad retirement annuity accordingly. The number of years

covered by a lump-sum payment and thus the period when the annuity will

be reduced, will generally be clear from the pension plan. If one of

the alternatives to a lump-sum payment is a life annuity, and the

amount of the monthly benefit for the life annuity can be determined,

the reduction will be based on that monthly benefit amount. Where the

period or the equivalent monthly pension benefit is not clear, it may

be necessary for the Board to determine the reduction period on an

individual basis.

(d) Exceptions. The reduction does not apply:

(1) If the annuitant is receiving a government pension based on

employment for an interstate instrumentality; or

(2) If the annuitant receives or is eligible to receive a

government pension for one or more months in the period December 1977

through November 1982 and he or she meets the requirements

[[Page 22265]] for social security benefits that were applied in

January 1977 (even though he or she did not actually claim such

benefits nor become entitled to such benefits until a later month). The

January 1977 requirements are, for a man, a one-half support test (see

paragraph (e) of this section), and, for a woman claiming benefits as a

divorced spouse, marriage for at least 20 years to the insured worker.

A person is considered eligible for a government pension for any month

in which he or she meets all the requirements for payment except that

he or she is working or has not applied; or

(3) If the annuitant was receiving or eligible (as defined in

paragraph (d)(2) of this section) to receive a government pension for

one or more months before July 1983, and he or she meets the one-half

support test (see paragraph (e) of this section). If the annuitant

meets the exception in this paragraph but he or she does not meet the

exception in paragraph (d)(2) of this section, December 1982 is the

earliest month for which the reduction will not affect his benefits; or

(4) If the annuitant has been eligible for a government pension in

a given month except for a requirement which delayed eligibility for

such pension until the month following the month in which all other

requirements were met, the Board will consider the annuitant to be

eligible in that given month for the purpose of meeting one of the

exceptions in paragraphs (d)(2) and (d)(3) of this section. If the

annuitant meets an exception solely because of this paragraph, his or

her benefits will be unreduced for months after November 1984 only.

(e) The one-half support test. For a man to meet the January 1977

requirement as provided in the exception in paragraph (d)(2) of this

section and for a man or a woman to meet the exception in paragraph

(d)(3) of this section, he or she must meet a one-half support test.

One-half support is defined in part 222 of this chapter. One-half

support must be met at one of the following times:

(1) If the employee upon whose compensation the spouse or divorced

spouse annuity is based had a period of disability, as defined in part

220 of this chapter, which did not end before he or she became entitled

to an age and service or disability annuity, the spouse/divorced spouse

annuitant must have been receiving at least one-half support from the

employee either--

(i) At the beginning of the employee's period of disability; or

(ii) At the time the employee became entitled to an age and service

or disability annuity.

(2) If the employee upon whose compensation the spouse or divorced

spouse annuity is based did not have a period of disability, as defined

in part 220 of this chapter, at the time of his or her entitlement, the

spouse or divorced spouse annuitant must have been receiving at least

one-half support from the employee at the time the employee became

entitled to an age and service or disability annuity.

(f) Amount of reduction. (1) If the spouse/divorced spouse

annuitant becomes eligible for a government pension after June 1983,

the Board will reduce (to zero, if necessary) the tier I annuity

component by two-thirds of the amount of the monthly pension. If the

amount of the reduction is not a multiple of 10 cents, it will be

rounded to the next higher multiple of 10 cents.

(2) If the spouse/divorced spouse annuitant became eligible for a

government pension before July 1983 and he or she did not meet one of

the exceptions in paragraph (d) of this section, the Board will reduce

(to zero, if necessary) the tier I component by the full amount of the

pension for months before December 1984 and by two-thirds the amount of

his or her monthly pension for months after November 1984. If the

amount of the reduction is not a multiple of 10 cents, it will be

rounded to the next higher multiple of 10 cents.

(g) Reduction not applicable. This reduction is not applied to

claimants who both filed and were entitled to a spouse benefit prior to

December 1977.

Sec. 226.32 Spouse tier II.

The spouse tier II benefit is computed as follows:

(a) The employee's tier II amount as computed under Sec. 226.11 of

this part, after any reduction for entitlement to a vested dual benefit

but before reduction for the railroad retirement family maximum, is

multiplied by 45 percent. The spouse tier II is recomputed if the

employee's tier II rate is reduced for entitlement to a vested dual

benefit after the beginning date of the spouse annuity.

(b) If tier I of a spouse annuity is reduced for the spouse's

employee annuity, as provided for in Sec. 226.30(g) of this part, the

reduction is restored in tier II. The restored amount is payable on the

effective date of the spouse or the employee tier I benefit, whichever

is later. The previous tier II rate is increased by the restored

amount, which is determined as follows:

(1) Initial restored amount. The restored amount is the amount by

which the spouse tier I was reduced by reason of receipt of an employee

annuity on the date the restored amount is first payable. The restored

amount is only payable if either the employee or spouse had railroad

service prior to 1975.

(2) Recomputation of restored amount. The restored amount is

recomputed if the spouse becomes entitled to a government pension, a

social security benefit, or a different type of social security benefit

after the date the initial restored amount is effective. The recomputed

amount is the amount by which the spouse tier I is reduced by reason of

receipt of an employee annuity on the effective date of the entitlement

to a government pension or social security benefit.

(3) Cost-of-living increase in restored amount. If an initial or

recomputed restored amount is effective before the effective date of

the cost-of-living increase shown in paragraph (e) of this section, the

restored amount is multiplied by the percentage increase that applies.

The result is added to the restored amount on the effective date of the

increase for each year that the increase is payable.

(c) If the employee's tier II has been reduced pursuant to section

3(g)(2) of the Railroad Retirement Act (takeback provision) the spouse

tier II is reduced by one half of the ``takeback'' in the employee tier

II.

(d) If the railroad retirement family maximum applies, as shown in

Secs. 226.50-226.52 of this part, the spouse tier II rate, as

determined in paragraphs (a) through (c) of this section, is reduced by

the smaller of--

(1) The total railroad retirement maximum reduction amount; or

(2) The previous spouse tier II rate.

(e) The tier II rate, from paragraphs (a) through (d) of this

section, is increased by the same percentage as the employee tier II

increase described in Sec. 226.11(e) of this part.

(f) If the spouse is entitled to a reduced age annuity (see

Sec. 216.51 of this chapter), the tier II rate, as determined in

paragraphs (a) through (e) of this section is reduced in the same

manner as the tier I as provided for in Sec. 226.30(e) of this part.

Example: An employee's tier II rate is $329.63 effective October

17, 1981. The spouse rate is $148.33 (45 percent x $329.63)

effective October 17, 1981. This is increased to $151.89 effective

June 1, 1982, by a cost-of-living increase of 2.4 percent. The

spouse is 35 months under age 65, the present retirement age, when

the annuity begins. The $151.89 rate is multiplied by 35/144 to

produce an age reduction of $36.92. This is

[[Page 22266]] subtracted from $151.89 to produce a final rate of

$114.97.

Sec. 226.33 Spouse regular annuity rate.

The final tier I and tier II rates, from Secs. 226.30 and 226.32,

are added together to obtain the total spouse regular annuity rate.

Sec. 226.34 Divorced spouse regular annuity rate.

The regular annuity rate of a divorced spouse is equal to his or

her tier I amount. The divorced spouse is not entitled to a tier II

benefit.

Sec. 226.35 Deductions from regular annuity rate.

The regular annuity rate of the spouse and divorced spouse annuity

may be reduced by premiums required for supplemental medicare coverage,

income tax withholding (spouse annuity only), recovery of debts due the

Federal government, and garnishment pursuant to part 350 of this

chapter.

Subpart D--Railroad Retirement Family Maximum

Sec. 226.50 General.

There is a monthly ceiling on total family benefits which limits

the amount of certain portions of the employee and spouse annuity. This

railroad retirement family maximum amount varies according to the

employee's earnings in the ten-year period that ends with the year in

which his or her annuity begins. If the employee and spouse annuity

amounts described in Sec. 226.52 of this part are higher than the

maximum from Sec. 226.51 of this part, first the spouse tier II, then

the supplemental annuity and, finally, the employee tier II are reduced

until the total annuity amount is equal to the maximum or until the

spouse tier II and the employee supplemental annuity and tier II have

been reduced to zero, whichever comes first. The reduction for the

railroad retirement family maximum is first computed from the date the

employee's annuity begins. It is recomputed if the employee's tier II

rate is reduced for entitlement to a vested dual benefit. It is also

recomputed if a workers' compensation or other disability benefit

begins or ends, or the employee's tier I benefit or supplemental

annuity begins after the beginning date of the regular employee

annuity. Finally, it is recomputed if a spouse who was entitled to an

annuity divorces the employee or the spouse annuity entitlement ends.

Sec. 226.51 Maximum monthly amount.

The railroad retirement family maximum is equal to an employee's

``final average monthly compensation'' (FAMC) up to \1/2\ of \1/12\ of

the annual maximum tier I earnings as shown in part 224 of this chapter

in the year the annuity begins plus 80 percent of so much of his or her

FAMC as exceeds \1/2\ of \1/12\ of the tier I maximum in the year the

annuity begins. For this purpose, the FAMC is determined by dividing

the individual's total earnings up to the tier II earnings limit as

shown in part 211 of this chapter for the two highest-earnings years

out of the last 10 calendar years, including the year of retirement, by

24. The railroad retirement maximum cannot be more than the FAMC and

cannot be less than $1,200.

Example: An employee's annuity begins on December 2, 1982. He

has yearly earnings that exceed the tier II annual maximum of

$24,300 in 1982 and $22,200 in 1981. The FAMC is the sum of the tier

II maximum for 1981 and 1982 divided by 24 ($24,300 +

$22,20024) or $1,937.50. The maximum which may be credited

to a month for tier I in 1982 is $2,700. The family maximum is

$1,350 (\1/2\ of \1/12\ of the annual tier I maximum) plus $470 (80%

of the difference between $1,937.50 and $1,350) or $1,820.

Sec. 226.52 Total annuity subject to maximum.

The total annuity amount which is compared to the maximum monthly

amount to determine if a reduction for the railroad retirement family

maximum applies is determined by adding together the amounts in

paragraphs (a) and (b) of this section. A hypothetical spouse annuity

amount is included from the beginning date of the employee annuity if

the spouse is not entitled to an annuity at the time the maximum

calculation is made.

(a) Employee annuity amounts. The following amounts are added

together--

(1) The employee tier I amount, effective on the date the

employee's tier I benefit begins or, if later, on the date a reduction

for other disability benefits begins or ends, as shown in Sec. 226.71

of this part. This amount is before any reduction for age or social

security benefits but after including any delayed retirement credits,

after any reduction for other disability benefits, and after rounding;

and

(2) The employee tier II rate before reduction for the railroad

retirement family maximum, effective on the employee's annuity

beginning date and, if later, on the date the tier II is first reduced

for a vested dual benefit, as shown in Sec. 226.11 of this part; and

(3) The initial supplemental annuity rate effective on the date the

supplemental annuity begins, before any reduction for a private

pension, as shown in part 227 of this chapter.

(b) Spouse annuity amounts. The following amounts are added

together--

(1) The spouse tier I amount, which is or would be effective on the

date the employee's annuity or tier I benefit begins, as shown in

Sec. 226.30. This amount is before any reduction for other disability

benefits, age, or social security benefits, but after any reduction for

a government pension or employee annuity; and

(2) The spouse tier II rate which is or would be effective on the

employee's annuity beginning date, the date the employee's tier I

benefit begins, or the date the employee's tier II rate is reduced for

a vested dual benefit, as shown in Sec. 226.11. This rate includes the

restored amount but does not include any cost-of-living increase in the

tier II original rate or restored amount. It is the rate before

reduction for the railroad retirement family maximum or age minus any

cost-of-living increases.

Subpart E--Years of Service and Average Monthly Compensation

Sec. 226.60 General.

The years of service and average monthly compensation used in

computing an employee's tier II annuity rate are based on the

employee's creditable railroad service and compensation as described in

parts 210 and 211 of this chapter. In computing the average monthly

compensation, the compensation for each year cannot be higher than

twelve times the tier II monthly maximum creditable for that year, as

described in part 211 of this chapter.

Sec. 226.61 Use of military service.

(a) Claim for use of military service. An employee is deemed to

have filed a claim for the use of military service and earnings as

service and compensation under the Railroad Retirement Act if--

(1) The employee indicates on the annuity application or another

signed statement that he or she has military service;

(2) The employee does not specifically request that the military

service be credited as wages under the Social Security Act;

(3) The military service is creditable under the Railroad

Retirement Act, as shown in part 212 of this chapter; and

(4) Using the military service as railroad service and compensation

would be to the employee's advantage (the employee and his or her

family would receive higher total benefits than if the military service

were credited under the Social Security Act).

(b) Effective date for use of military service. Military service

can be used as service and compensation under the

[[Page 22267]] Railroad Retirement Act starting with the date the

annuity begins but no earlier than twelve months before the employee

files an application or statement showing that he or she has military

service.

Sec. 226.62 Computing average monthly compensation.

The employee's average monthly compensation is computed by first

determining the employee's highest 60 months of railroad compensation

(disregarding compensation in excess of the maximum creditable tier II

compensation for that year). The total of the highest 60 months is then

divided by 60 to determine the average monthly compensation.

Sec. 226.63 Determining monthly compensation.

(a) Based on yearly compensation. If Board records do not show

monthly compensation for a year, the monthly compensation is determined

by dividing the total compensation reported for the year by the number

of months of service credited to the employee for that year.

(b) For employee with government employment and no railroad service

for 60-month period before annuity begins--(1) General. The

compensation used in determining the average monthly compensation (AMC)

is indexed for an employee who has not worked in the railroad industry

for the 60-month period before the month the employee's annuity begins

and whose major employment during that period was for a government

agency listed in Sec. 216.16 of this chapter. The compensation is

indexed by multiplying it by the quotient obtained by dividing the

average annual wage for the indexing year by the average annual wage

for the year being indexed. If the month for which compensation is

being indexed is before 1951, the average annual wage for 1951 is used.

(2) Indexing year defined. The indexing year is the second year

before the year in which the annuity begins.

Subpart F--Reduction for Workers' Compensation and Disability

Benefits Under a Federal, State or Local Law or Plan

Sec. 226.70 General.

For any month an employee disability annuitant is entitled to

workers' compensation or a public disability benefit, the tier I

benefit of the spouse or divorced spouse is reduced due to receipt of

such benefits. (If both spouse and divorced spouse annuities are

payable, the reduction amount is divided and applied in equal amounts

to both the spouse and divorced spouse tier I benefits.) The employee

tier I is reduced by the difference between the total reduction amount,

described in Sec. 226.71 of this part, and the reduction in the spouse

and divorced spouse tier I benefits.

Sec. 226.71 Initial reduction.

(a) When reduction is effective. A reduction for other disability

benefits begins with the first month the employee is receiving both a

disability annuity and workers' compensation or a public disability

benefit. The reduction ends with the month before the month in which

the employee becomes 65 years old or with the month in which the

workers compensation or public disability benefit ends.

(b) Amount of reduction. The reduction for other disability

benefits equals the difference between--

(1) The total tier I rates of the employee, spouse, and divorced

spouse, before any reductions (age, public pension, social security

benefits, etc.) plus the monthly amount of the workers' compensation of

public disability benefit; and

(2) The higher of--

(i) Eighty percent of the employee's average current earnings, as

defined in this section; or

(ii) The total tier I rates, as described in paragraph (b)(1) of

this section.

Example 1: Harold is entitled to a monthly disability annuity

with a tier I component of $507 and a monthly public disability

benefit of $410 from the state. Eighty percent of Harold's average

current earnings is $800. Because this amount is higher than

Harold's tier I component, to determine the reduction for other

disability benefits the Board subtracts this amount ($800) from the

total of Harold's tier I component ($507) and public disability

benefit ($410) which results in a reduction amount of $117 ($917-

$800). This leaves Harold with a reduced tier I amount of $390

($507-$117).

Example 2: Tom is entitled to a disability annuity with a tier I

component of $560. His wife and divorced wife are both entitled to

annuities with tier I components of $280 each. Total benefits are

$1,120. Tom is receiving a monthly workers' compensation benefit of

$500 from the state. Eighty percent of Tom's average current

earnings is $820. Because the total benefit ($1,120) is higher than

Tom's average current earnings, to determine the reduction for other

disability benefits the Board subtracts this amount from $1,620

($1,120 plus $500) which results in a reduction amount of $500. This

means that the tier I of the spouse and divorced spouse annuity are

each reduced by $250.

(c) Average current earnings, defined. An employee's ``average

current earnings'' is the highest of--

(1) The average monthly wage (AMW) used to compute the tier I AMW

PIA. (The earnings are not indexed, even if the tier I PIA which is

being paid is based on average indexed monthly earnings. See part 225

of this chapter.); or

(2) One-sixtieth of the employee's total earnings covered under

either the Social Security or Railroad Retirement Acts (including

earnings that exceed the maximum earnings used in computing social

security benefits) for the five consecutive years after 1950 in which

the employee had the highest earnings. The result, if not a multiple of

$1, is rounded to the next lower multiple of $1; or

(3) One-twelfth of the employee's total earnings covered under

either the Social Security or Railroad Retirement Acts (including

earnings that exceed the maximum earnings used in computing social

security benefits) for the year of highest earnings in the period which

includes the year in which the employee became disabled and the five

preceding years. The result, if not a multiple of $1, is rounded to the

next lower multiple of $1.

Sec. 226.72 Benefits that do not cause a reduction.

The tier I is not reduced for the following types of benefits:

(a) A benefit paid under a law or plan that provided, on February

18, 1981, for reducing the benefit for entitlement to a disability

insurance benefit under the Social Security Act.

(b) A Federal disability benefit based on service for other than a

state or local government, if all or part of that service is covered

under the Social Security Act.

(c) A disability benefit paid by the Federal government or a state

or local government based on state or local employment, if all or

substantially all of that employment is covered under the Social

Security Act. ``Substantially all'' means 85 percent or more of the

employment.

(d) A benefit paid by the Veteran's Administration.

(e) Private disability benefits.

(f) Amounts paid under the Federal Employers' Liability Act (FELA).

(g) Benefits based on need, such as welfare benefits or

supplemental security income.

Sec. 226.73 Changes in reduction amount.

The reduction amount is not changed when a tier I benefit increases

because of a recomputation or a general adjustment in annuity rates,

such as a cost-of-living increase. However, the reduction amount may

change for the following reasons:

(a) A spouse or divorced spouse becomes entitled to a tier I

benefit after [[Page 22268]] the effective date of the reduction. The

reduction amount is recomputed as if the spouse or divorced spouse were

entitled to a tier I benefit on the date the reduction first applied.

The new reduction amount applies beginning with the date the spouse or

divorced spouse tier I benefit begins.

Example: An employee became entitled to an annuity with a tier I

component of $500 on May 1, 1991. He was also receiving a state

disability benefit of $300 a month based on employment not covered

under the Social Security Act. On June 1, 1991, the employee's tier

I increased to $520.70. On October 1, 1991, the employee's wife

becomes entitled to an annuity with a tier I benefit of $260.00. The

tier I amount ($250) that would have been payable to the wife on May

1, 1991 (assuming she had been eligible for a benefit at that time)

is used to determine the reduction for other disability benefits

beginning October 1, 1991.

(b) The tier I benefit of a spouse or divorced spouse annuity ends

after the effective date of the reduction. The new reduction amount is

computed using the tier I rate to which the employee was entitled when

the reduction first applied. The new reduction amount applies beginning

with the month after the month in which the spouse or divorced spouse

tier I benefit ends.

(c) The average current earnings are redetermined, as shown in

Sec. 226.74.

(d) The amount of the other disability benefit changes. The

reduction amount is recomputed to use the new benefit rate beginning

with the date on which the new rate is payable. Any increases in the

tier I amounts which were effective after the reduction first applied

are not included in computing the new reduction amount.

Example: The employee's tier I benefit is $500 on May 1, 1991,

when the annuity is first reduced for other disability benefits. The

tier I increases to $520 effective June 1, 1991. When the amount of

the disability benefit changes on October 1, 1991, $500, not $520,

is used as the employee tier I amount in recomputing the reduction

amount.

Sec. 226.74 Redetermination of reduction.

(a) General. The average current earnings are redetermined in the

second year after the year the reduction for other disability benefits

was first applied and every third year after that. The redetermined

amount is used only if it results in a lower reduction amount. The new

reduction amount is effective with January of the year after the

redetermination is made.

(b) Redetermined average current earnings. The average current

earnings are redetermined by multiplying the initial average current

earnings amount by--

(1) The average of the total wages (including wages that exceed the

maximum used in computing social security benefits) of all persons for

whom wages were reported to the Secretary of the Treasury for the year

before the year of redetermination, divided by the average of the total

wages reported to the Secretary of the Treasury for 1977 or, if later,

the year before the year for which the reduction was first computed. If

the result is not a multiple of $1, it is rounded to the next lower

multiple of $1; or

(2) If the reduction was first computed before 1978, the average of

all taxable wages reported to the Secretary of Health and Human

Services for the first quarter of 1977, divided by the average of all

taxable wages reported to the Secretary of Health and Human Services

for the first quarter of the year before the year for which the

reduction was first computed. If the result is not a multiple of $1, it

is rounded to the next lower multiple of $1.

Subpart G--Recomputation To Include Additional Railroad Service and

Compensation

Sec. 226.90 When recomputation applies.

An employee's annuity may be recomputed to include additional

railroad service and compensation and social security wages which the

employee earns after the beginning date of the employee annuity. The

annuity is recomputed only if the recomputation increases the annuity

rate by more than $1 a month or results in a lump-sum payment of more

than $5. Before a recomputed rate can be paid, the employee must stop

working in the railroad industry. A recomputed tier I component is

payable beginning with January 1 of the year after the year in which

the wages or compensation are earned or (provided the employee is age

62 or disabled), in the case of railroad compensation, in the year

after the employee stops working in the railroad industry. A recomputed

tier II component is payable from the date the annuity is reinstated

after the employee has ceased railroad work.

Sec. 226.91 How an employee annuity rate is recomputed.

(a) Tier I. A recomputation is made if any social security wages or

railroad compensation for a year in which the employee returned to work

are higher than the earnings for a year included in the previous

computation of the tier I PIA, as shown in part 225 of this chapter.

The higher earnings are used instead of the lower earnings for the

earlier year to determine the average monthly wage or average indexed

monthly earnings. Part 225 of this chapter describes how a PIA is

recomputed.

(b) Tier II. The additional service is added to the years of

service previously used in computing the tier II rate. The additional

compensation is used to recompute the average monthly compensation, if

the compensation for a month in which the employee returned to railroad

service is higher than the compensation for a month used in the

previous computation of the average monthly compensation. The higher

monthly compensation is used instead of the lower compensation for a

previous month to determine the new average monthly compensation as

shown in Sec. 226.62 of this part. The increased years of service and

average monthly compensation are used in computing a new tier II rate,

as shown in Sec. 226.11 of this part.

Example: An employee receiving an annuity which began on January

1, 1992, returns to railroad service for 10 months in 1992 and 2

months in 1993. He stops work on February 20, 1993. He has earnings

of $34,500.00 in 1992 and $5,200.00 in 1993. His tier II rate

effective January 1, 1992, was based on 26 years (312 months) of

service and an average monthly compensation of $2,995

($179,70060). The additional 12 months of service increases

the year of service used in computing the tier II rate to 27 (312

months + 12 months = 324 months 12 = 27). The 1992 earnings

of $34,500.00 are used instead of 1987 earnings of $32,700.00. The

1993 earnings are not used because they are lower than the earnings

for previous months used in computing the average monthly

compensation. The additional $1,800.00 in earnings increases the

average monthly compensation to $3,025 ($179,100 + $1,800.00 =

$181,500.0060). The initial tier II amount is increased from

$545.09 (26 x $2,995 x .007) to $571.73 (27 x $3,025 x .007),

effective with the date of annuity reinstatement, March 1, 1993.

Sec. 226.92 Effect of recomputation on spouse and divorced spouse

annuity.

The annuity of a spouse or divorced spouse is recomputed to use the

employee's recomputed tier I PIA and tier II rate, if the recomputation

results in a lump-sum payment of more than $5 or an increase in the

spouse or divorced spouse annuity rate of more than $1 a month. The

spouse or divorced spouse annuity rate is recomputed beginning with the

same date the employee's annuity rate is recomputed.

PART 232--SPOUSES' ANNUITIES--[REMOVED]

2. For the reasons set out in the preamble, Part 232--Spouses'

Annuities, is removed.

Dated: April 28, 1995. [[Page 22269]]

By authority of the Board.

For the Board,

Beatrice Ezerski,

Secretary to the Board.

[FR Doc. 95-11142 Filed 5-4-95; 8:45 am]

BILLING CODE 7905-01-P