Spring 2000
Volume 107 - No. 1
Spring 2000
Volume 107 - No. 1
BLE Focus
The Brotherhood of Locomotive Engineers was founded on May 8, 1863. Our 137th anniversary came and went without much celebration or fanfare.
In this issue of the Locomotive Engineers Journal, we take a snapshot of five major issues facing our members today.
A key economic item on the bargaining agenda is the improvement of Railroad Retirement benefits, including increasing annuities to surviving spouses and reducing the retirement age. There is draft legislation being circulated that addresses these goals, but which contains serious flaws.
Background
The early 1980s were a turbulent period for the railroad industry, as those who worked their way through it can tell you. This was just as true for Railroad Retirement as it was for any other aspect of the industry. Thanks to deregulation in 1980, thousands of miles of track were spun off or abandoned, causing employment levels to plummet.
Because the future of the Railroad Retirement system was in serious doubt, several changes were made to benefits and contributions. The Railroad Retirement Board reversed a prior interpretation that someone who was at least one day older than 59-1/2 was considered to be age 60 for retirement purposes. This was followed by several changes to the Railroad Retirement Act.
First, those who retired in the future between age 60 and age 62 would have their pensions actuarially reduced. Second, the carrier's contribution to Tier II, which is the railroad industry's pension fund, would increase from 9.5% to 16.1% during the 1980s. Third, railroad workers themselves would have to make direct contributions to their own pension fund; the employees' direct Tier II tax rate currently is 4.9%. This is over and above the 7.65% of earnings that carriers and employees each currently pay into Tier I, which is the railroad industry's equivalent of Social Security.
Over the past decade, the rate of decline in employment levels has stabilized. In 1997, Congressman Jack Quinn of New York, and others, began applying public pressure on the carriers to sit down with rail labor and improve benefits for widows and widowers. In addition, it became apparent that the Tier II fund would skyrocket in size in the coming decades, as the "Baby Boom" generation demographics reversed. These factors led to discussions between rail labor and the rail carriers over how Railroad Retirement could be improved.
The carriers initially proposed doing for retirement what they did for operating craft employees during the 1980s... create a two-tiered pension system. Under this proposal, future hires would not participate in Railroad Retirement at all. Rather, they would receive benefits from a privately-administered pension fund, into which the carriers would contribute much less money. Rail labor rejected this approach.
About a year ago, a general proposal began to take shape, with private investment of up to one-half of the Tier II fund providing the engine for increased benefits and some savings for the carriers (since any changes to Railroad Retirement must be legislated by Congress, the practice has been for labor and management to reach consensus on a set of mutually satisfactory changes, which forms the basis for the legislation).
The carriers made an economic presentation indicating that this level of private investment would produce an estimated 8% rate of return. Economists employed by rail labor confirmed that this projection was reasonable. However, a difference of opinion began to develop over how a deal should be structured.
Everyone agreed that taking care of surviving spouses was a top priority, and there also was unanimity on reducing the number of months required to become vested in Railroad Retirement. The consensus on health care was that no less than the current GA 46000 benefits should be provided to all early retirees, not just those age 61 and over. However, there was insufficient cost information available at that stage for us to intelligently consider what range of retirement age reduction might be possible.
Early last fall, after the Railroad Retirement Board (RRB) had said that it was not in a position to run a series of complex actuarial analyses to produce a range of possible benefit improvement packages and the tax implication of each, the BLE and the Brotherhood of Maintenance of Way Employes (BMWE) underwrote such a study by a commercial economic firm, whose data could then be validated by the RRB.
For about a two month period, there were no negotiations, because the carriers refused to discuss adjusting the retirement age beyond restoring the actuarial reduction at ages 60 and 61. Then, while the analysis was being conducted, the discussions began to heat up again.
Because the industry flatly refused to even discuss "55/30," BMWE was unable to continue to negotiate as part of the rail labor coalition. Our position was that a clear message must be sent to the carriers that 60/30 is not conceded, and that we would not take a position on retirement age until we knew the figures and were satisfied that a better deal was not affordable.
Thus, when the 11 unions supporting the legislation agreed to "60/30" we, too, found ourselves outside the labor coalition. Since that day last fall, we have not been able to participate in the negotiating process concerning our members' pensions, because the carriers have rejected several offers by us to continue to bargain.
Update
Because attempting to change Railroad Retirement without consensus among all parties could set a dangerous precedent for the future, BLE and BMWE proposed that the relief for widows and widowers - which had unanimous support - be sent up for immediate legislative enactment, while we redoubled our efforts to achieve consensus on the issue of lowering retirement age. This proposal was rejected out of hand.
At about the same time, we learned that the RRB had not provided our actuaries with sufficient demographic employment data to enable them to run the sort of detailed analysis required to produce a valid report. While RRB itself eventually produced the actuarial analysis in mid-March, the "deal" had already been done.
The understanding reached in January - from which the BLE was excluded, unless we wanted to just "me too" the document, without ever having discussed the issues to our satisfaction - provided many important benefits, some of which are sorely overdue. However, the agreement also provided that, beginning in 2003, the industry would receive tax breaks equal to 3.44% of payroll, through the elimination of the Supplemental Annuity Tax and a reduction in the carriers' Tier II contribution to our pension plan.
Based on the RRB's estimates at the time (the numbers would sharply rise later) this meant that the industry would reap $347 million a year. We also suspected, looking at some prior RRB figures, that we could have taken the retirement age down to at least 59. It was the RRB's own figures that confirmed our belief, when they finally were released.
Two striking facts developed from the data RRB provided. The first was that the carriers' post-2003 take was more like $412.8 million a year. The second was that lowering the retirement age to 58 was possible, and the industry could still receive approximately $100 million a year.
This created a dilemma for the BLE leadership. On the one hand, no one supports improved pension benefits more that we do, especially for the widowed. When our attempt to provide them with immediate relief was rejected, they essentially became hostages to this process. On the other hand, putting an extra $300 million a year into the carriers' pockets instead of chopping two years off of the retirement age is something that can never be undone.
What's in Store?
A BLE/BMWE proposal for 58/30 has already been rejected, as was a BLE proposal for 59/30, coupled with a health increase in the $75,000 GA 46000 lifetime cap. Congressman Jim Oberstar (D-Minn.) - himself most concerned about changing Railroad Retirement without the necessary consensus - developed a compromise proposal that would have provided for retirement as early as age 58, with actuarial reductions similar to those in effect for ages 60 and 61 today - along with GA 46000 for all early retirees and a matching reduction in the eligibility age for spouses.
In the midst of all the finger-pointing coming out of Washington, one thing that must not be forgotten is that the Oberstar compromise proposal was shot down in flames by the Association of American Railroads before it was presented to the BLE and BMWE for consideration. What happened next raises serious questions whether the carriers' untrammeled greed has doomed this effort completely.
When the BLE finally obtained a copy of the April 6 draft of the legislation, there were a number of surprises. First, the 50% cap on Tier II investments was missing. Second, two other funds - the Supplemental Annuity Benefit fund and the Social Security Equivalent Benefit (SSEB) fund - would be merged into the Tier II fund and, thus, be subject to private investment with no statutory cap.
Further investigation disclosed that the SSEB fund was the repository for the Tier I taxes and is the fund from which Tier I Social Security equivalent benefits are paid. This reflects the understanding of the Democratic Staff for the House Ways and Means Committee, as well as that of House Minority Leader Gephardt's staff, and has been confirmed by a RRB representative.
The BLE is attempting to discover how a framework to privately invest half of Tier II evolved into an unrestricted right to invest Railroad Retirement funds from all sources. The initial letter on this subject from President Dubroski - asking specifically when this change was agreed to, and whether all the implications of such a change had been considered and debated - has triggered by an orchestrated assault against the BLE and the BMWE.
The primary concern is that these after-the-fact changes make the legislation something that is very different from our understanding of the original agreement. The future of Railroad Retirement as a government-administered system could be challenged by certain members of Congress. Those on the opposite end of the political spectrum may end up turning away from uncapped investment of all Railroad Retirement funds, because this could possibly set a precedent for similar action for Social Security.
Benefit improvements are sorely needed... but not at any cost. This issue will continue to develop throughout the spring and, likely, into the summer; in the meantime, it is important to continue to get out all the facts. It was a mistake to move forward without first gaining the historical consensus required in the past as a precondition for changing Railroad Retirement. That mistake apparently has been compounded by overreaching that was written into the bill's sections dealing with private investment. ·
© 2000 Brotherhood of Locomotive Engineers