Creditable Railroad Compensation

RAILROAD RETIREMENT BOARD

20 CFR Part 211

RIN 3220-AB23

Creditable Railroad Compensation

AGENCY: Railroad Retirement Board.

ACTION: Proposed rule.

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SUMMARY: The Railroad Retirement Board hereby proposes to amend its

regulations to limit the crediting of pay for time lost to periods

prior to the judgment or agreement establishing that payment or in the

case of pay for time lost not attributable to a judgment or settlement,

prior to the date of payment.

DATES: Comments must be received on or before February 2, 1998.

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

Rush Street, Chicago, Illinois 60611.

FOR FURTHER INFORMATION CONTACT: Thomas W. Sadler, Senior Attorney,

Railroad Retirement Board, 844 N. Rush Street, Chicago, Illinois 60611,

telephone 312-751-4513, TTD 312-751-4701.

SUPPLEMENTARY INFORMATION: Payments made for periods during which an

employee is absent from the active service of an employer are

considered to be ``pay for time lost'' and creditable compensation

under the Railroad Retirement Act. Pay for time lost includes pay

received due to an injury or due to loss of earnings attributable to

the employee being placed in a position paying less money. Employers

are required to allocate pay for time lost to the months in which the

time was actually lost. Pursuant to section 211.3 of the current

regulations, the Board will accept an allocation of pay for time lost

for periods after the judgment or settlement, and after the payment is

made. The practice has been costly to the railroad retirement system in

that taxes under the Railroad Retirement Tax Act are imposed on

railroad compensation at the time of payment up to the maximum taxable

amount for the year in which the payment is made. Accordingly, if a

personal injury suit is settled in 1997 and the railroad agrees to pay

the employee $300,000 to be allocated as pay for time lost over the

period 1997 through 2002 with $50,000 being designated to each year as

pay for time lost, the employee would receive six years of retirement

credit, but taxes would cover only one year of those additional

credits.

There is no requirement in the statute that pay for time lost be

creditable prospectively and, in the view of the majority of the Board,

to allow prospective crediting of pay for time lost cannot be justified

in view of the additional, potentially large costs to the system.

Section 1(h)(2) of the Railroad Retirement Act requires that pay

for time lost must be paid with respect to an identifiable period of

absence. This language, in the view of a majority of the Board,

suggests that pay for time lost should be credited only to a known

period of absence in the past. It is impossible to predict whether or

not an

[[Page 64189]]

employee will remain absent from work in the future as a result of

injury; accordingly, there is no truly identifiable period for

prospective crediting of pay for time lost. Moreover, to allow parties

to private litigation to pass on a portion of the costs of litigation

to a Federal benefit program simply makes no sense.

Based on its review of the statutory language and the legislative

history, a majority of the Board, Labor Member dissenting, proposes to

amend its regulations to prohibit crediting of pay for time lost beyond

the date of the judgment or settlement or, in the absence of a judgment

or settlement, beyond the date of payment. The proposed regulation

excepts from these restrictions the crediting of deemed service months

pursuant to section 3(i)(4) of the Railroad Retirement Act. That

section provides that an employee who has performed service for

compensation in less than twelve months of a calendar year, but has

received compensation in excess of the amount that may be credited to

the months of actual service, may have the excess credited to an

additional month or months in that same year.

The Labor Member has made a proposal that he believes resolves the

financial problem with the existing procedure by requiring that taxes

be paid in each of the years for which pay for time lost credit is

sought. While the majority appreciates the Labor Member's efforts in

attempting to resolve the problems with the current policy, the

majority does not believe that the payment of taxes will fully fund the

additional benefit payment and believes that the better approach would

be to scrap what it believes to be a bad policy rather than tinker with

it.

Employees who negotiate prospective pay for time lost credits do so

because without the additional credits they would not meet the service

requirement of 20 years for an occupational disability annuity.

Accordingly, without the prospective pay for time lost credits, no

benefits would be payable to these employees until they reach age 60 or

become totally and permanently disabled. Railroad retirement taxes paid

for several years of pay for time lost will not cover the additional

costs to the system of the occupational disability annuities that

otherwise would not have been paid. Moreover, under the regulations, a

month of pay for time lost credit may be granted based on an allocation

of compensation to the month of at least 10 times the employee's daily

wage rate. Accordingly, taxes would be payable on an allocation of as

little as fifty percent of the employee's normal monthly compensation,

but the employee would receive a full month credit for retirement

purposes. The Labor Member's proposal does nothing to address this

shortfall. The majority simply does not believe that it is appropriate

to use trust fund moneys to subsidize the costs of private litigation.

Finally, the majority views the Labor Member's proposal as, in

effect, allowing employees to purchase retirement credit. In the view

of the majority, this is simply bad policy.

Views of the Labor Member of the Board

Section 1(h) of the Railroad Retirement Act authorizes the

crediting of pay for time lost as compensation insofar as the employee

and his or her railroad employer agree to that crediting in connection

with an on-the-job injury. That provision thereby encourages the

settlement of disputes and permits the allocation of loss between

parties, in whatever way those parties themselves see fit and so

negotiate, see 211.3(b) of the Board regulation 20 CFR Sec. 211.3(b).

The majority, by limiting the employer's ability to provide for

future lost wages as the result of an on-the-job injury, as proposed in

this rule, interferes with an employer's and employee's ability to

settle Federal Employers' Liability Act (FELA) claims. This needless

intrusion into FELA disputes by the Board will only increase litigation

of disputes which could easily have been settled. It also prevents

personal injury settlements from achieving the goal of making injured

employees, as far as possible, whole.

The majority of the Board states that pay for time lost is being

credited prospectively, after the date of settlement or judgment (or,

in the absence of a settlement or judgment, after the date of payment),

without taxes under the Railroad Retirement Tax Act being paid for

those payments. This can be true where pay for time lost in the future

is compensated for by a lump sum payment at the time of settlement. The

Labor Member notes the majority says the current procedures are costly,

but never states what that cost is, as requested by OMB. Nevertheless,

the Labor Member has a proposal, explained below, that directly

addresses this concern.

The majority also suggests that the statute, by providing that pay

for time lost may only be credited to an identifiable period of lost

time, precludes prospective crediting of pay for time lost. This view

reads more into the statute than is actually there. The Labor Member

agrees with the majority that pay for time lost may be credited only to

an identifiable period of lost time. That, he notes, does not mean that

the statute precludes, in any way, the crediting of pay for time lost

to a period of lost time after the date of settlement where agreed to

by the parties. This was recognized by the Board as early as 1947 in an

opinion by the Board's General Counsel, L-47-146. Indeed, the cases

where pay for time lost is allocated into the future are generally

those where the employee is so badly injured that he or she will never

again be able to work in the railroad industry. The only way the

employee may be made whole in such cases is by paying the employee for

future lost wages and providing the retirement credits that would

accrue from such future lost wages. As noted above, the Labor Member

believes that the past policy of allowing the crediting of pay for time

lost into the future has facilitated out-of-court settlement of

disputes and has served the interests not only of employees, but also

of employers. Although it is the opinion of the Labor Member that the

past policy is good policy, he believes that the problem with

prospective crediting of pay for time lost noted by the majority can be

addressed by simply prohibiting pay for time lost in the future to be

paid in the form of a lump sum. The Labor Member proposes that

prospective crediting of pay for time lost be limited to periodic

payments made in the year or years for which the credit is sought and

where the employment taxes are paid with respect to those payments.

Such payments are in the nature of wage continuation payments or

dismissal payments which are clearly compensation under the Act, see 20

CFR 211.9.

For example, John Doe and ABC Railroad enter into a settlement

agreement in July 1996 pursuant to which John Doe retains an employment

relationship with ABC Railroad through 1998 and ABC Railroad agrees to

pay John Doe pay for time lost in the amount of $150,000 for the years

1996 ($50,000), 1997 ($50,000), and 1998 ($50,000). ABC issues a check

to John Doe in 1996 for $50,000, minus the employee tax under the

Railroad Retirement Tax Act, and pays the employer tax and the withheld

employee tax under the Railroad Retirement Tax Act. ABC Railroad makes

the same payments to John Doe on January 1, 1997 and January 1, 1998.

John Doe would, under the Labor Member's proposal, receive credit for

pay for time lost in 1996, 1997, and 1998. If ABC Railroad were to pay

the $150,000 in a lump sum in 1996, John Doe would receive credit only

in 1996. The payments in the

[[Page 64190]]

above example would be reported on the Employer's Annual Report of

Compensation required under 20 CFR 209.6 along with other wages paid to

other employees that year. Pay for time lost payments would be

indistinguishable from regular wages. The Labor Member believes that

his proposal would address the concern of the majority by fully funding

the prospective pay for time lost credits while continuing to allow

railroad employees and railroad employers to use pay for time lost

allocations in a positive way to resolve disputes.

With the modification he suggested, the Labor Member feels there is

no further justification in the majority's position on this regulation.

The majority has indicated that it is better to scrap a ``bad''

regulation rather than ``tinker'' with it. The Labor Member believes

that making employees who are injured in service to the rail industry

whole is not tinkering. It is a moral obligation.

The majority also believes that the Labor Member's proposal amounts

to allowing employees to purchase retirement credits. This is true. It

would be allowed, however, for only those employees who have

demonstrated through long years of service a career commitment to the

rail industry, and then, only when they have been severely injured or

otherwise incapacitated while performing rail service. Finally, it

would be further limited to only those in the foregoing category who

receive compensation from a settlement based on a conviction of both

the railroad and the employee that the railroad would probably be found

negligent in causing the employee's injury.

The majority points out that the additional tax paid for several

years of pay for time lost will not finance the additional benefits

which would be paid under the Labor Member's proposal. The Labor Member

believes that this is true but irrelevant. Completely aside from the

obligation to make injured employees whole, whatever the cost, is the

well established, clearly understood, and universally accepted feature

of social insurance programs that the contributions paid by a disabled

participant will rarely ever finance the actual benefits paid to such

individual. Covering the cost of such eventualities from contributions

of the remaining participants, including the negligent railroads, is

the purpose of an insurance program. Disability benefits would

virtually never be paid by any program under the condition laid down in

this regulation by the Board majority.

The majority notes that ten times the employee's daily rate of pay

is too low an amount for a month of compensation. The Labor Member

points out that an employee who is not injured need perform only one

hour of service to get a month of railroad retirement credit. However,

whenever low compensation months are used to obtain additional service,

the compensation average on which the annuity is based is depressed,

producing a lower benefit. In any event, the ten times daily pay rate

rule has been set by regulation by a previous Board after full and

careful review of the issue. The issue ought not be reopened now.

Finally, the Labor Member notes that the majority references

``employees who negotiate'' pay for time lost. This terminology clearly

acknowledges that, under current procedures, prospective credit can be

given only when the railroads have agreed to do so. Thus, the railroads

already control the use of this procedure through their right to simply

refuse to go along with prospective crediting. Therefore, there is no

need for the regulation change herein proposed by the Board majority.

The Office of Management and Budget has determined that this is a

significant regulatory action under Executive Order 12866. There are no

information collections associated with this rule.

List of Subjects in 20 CFR Part 211

Pensions, Railroad employees, Railroad retirement.

For the reasons set out in the preamble, chapter II of title 20 of

the Code of Federal Regulations is amended as follows:

PART 211--[AMENDED]

1. The authority citation for part 211 continues to read as

follows:

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

2. Section 211.3 is amended by adding paragraph (c):

Sec. 211.3 Compensation paid for time lost.

* * * * *

(c)(1) Except as provided in paragraph (c)(2) of this section, pay

for time lost may not be credited to any period after the date of the

judgment or settlement agreement providing pay for time lost. If the

payment is not the result of a judgment or settlement, pay for time

lost may not, except as provided in paragraph (c)(2) of this section,

be credited to any period after the date of payment.

(2) Pay for time lost may be creditable as deemed service under

section 3(i)(4) of the Railroad Retirement Act in the year in which

either the judgment or settlement occurred or in the case of pay for

time lost not attributable to a judgment or settlement, in the year in

which the payment occurred.

Dated: November 21, 1997.

By Authority of the Board.

For the Board.

Beatrice Ezerski,

Secretary to the Board.

[FR Doc. 97-31725 Filed 12-3-97; 8:45 am]

BILLING CODE 7905-01-P