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107th Congress                                             Rept. 107-82
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
       RAILROAD RETIREMENT AND SURVIVORS' IMPROVEMENT ACT OF 2001

                                _______
                                

                  May 24, 2001.--Ordered to be printed

                                _______
                                

     Mr. Young of Alaska, from the Committee on Transportation and 
                Infrastructure, submitted the following

                              R E P O R T

                        [To accompany H.R. 1140]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Transportation and Infrastructure, to whom 
was referred the bill (H.R. 1140) to modernize the financing of 
the railroad retirement system and to provide enhanced benefits 
to employees and beneficiaries, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Railroad Retirement 
and Survivors' Improvement Act of 2001''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.

         TITLE I--AMENDMENTS TO RAILROAD RETIREMENT ACT OF 1974

Sec. 101. Expansion of widow's and widower's benefits.
Sec. 102. Retirement age restoration.
Sec. 103. Vesting requirement.
Sec. 104. Repeal of railroad retirement maximum.
Sec. 105. Investment of railroad retirement assets.
Sec. 106. Elimination of supplemental annuity account.
Sec. 107. Transfer authority revisions.
Sec. 108. Annual ratio projections and certifications by the Railroad 
Retirement Board.

       TITLE II--AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986

Sec. 201. Amendments to the Internal Revenue Code of 1986.
Sec. 202. Exemption from tax for Railroad Retirement Investment Trust.
Sec. 203. Repeal of supplemental annuity tax.
Sec. 204. Employer, employee representative, and employee tier 2 tax 
rate adjustments.

         TITLE I--AMENDMENTS TO RAILROAD RETIREMENT ACT OF 1974

SEC. 101. EXPANSION OF WIDOW'S AND WIDOWER'S BENEFITS.

  (a) In General.--Section 4(g) of the Railroad Retirement Act of 1974 
(45 U.S.C. 231c(g)) is amended by adding at the end the following new 
subdivision:
  ``(10)(i) If for any month the unreduced annuity provided under this 
section for a widow or widower is less than the widow's or widower's 
initial minimum amount computed pursuant to paragraph (ii) of this 
subdivision, the unreduced annuity shall be increased to that initial 
minimum amount. For the purposes of this subdivision, the unreduced 
annuity is the annuity without regard to any deduction on account of 
work, without regard to any reduction for entitlement to an annuity 
under section 2(a)(1) of this Act, without regard to any reduction for 
entitlement to a benefit under title II of the Social Security Act, and 
without regard to any reduction for entitlement to a public service 
pension pursuant to section 202(e)(7), 202(f)(2), or 202(g)(4) of the 
Social Security Act.
  ``(ii) For the purposes of this subdivision, the widow or widower's 
initial minimum amount is the amount of the unreduced annuity computed 
at the time an annuity is awarded to that widow or widower, except 
that--
          ``(A) in subsection (g)(1)(i) `100 per centum' shall be 
        substituted for `50 per centum'; and
          ``(B) in subsection (g)(2)(ii) `130 per centum' shall be 
        substituted for `80 per centum' both places it appears.
  ``(iii) If a widow or widower who was previously entitled to a 
widow's or widower's annuity under section 2(d)(1)(ii) of this Act 
becomes entitled to a widow's or widower's annuity under section 
2(d)(1)(i) of this Act, a new initial minimum amount shall be computed 
at the time of award of the widow's or widower's annuity under section 
2(d)(1)(i) of this Act.''.
  (b) Effective Date.--
          (1) In general.--The amendment made by this section shall 
        take effect on the first day of the first month that begins 
        more than 30 days after enactment, and shall apply to annuity 
        amounts accruing for months after the effective date in the 
        case of annuities awarded--
                  (A) on or after that date; and
                  (B) before that date, but only if the annuity amount 
                under section 4(g) of the Railroad Retirement Act of 
                1974 (45 U.S.C. 231c(g)) was computed under such 
                section, as amended by the Omnibus Budget 
                Reconciliation Act of 1981 (Public Law 97-35; 95 Stat. 
                357).
          (2) Special rule for annuities awarded before the effective 
        date.--In applying the amendment made by this section to 
        annuities awarded before the effective date, the calculation of 
        the initial minimum amount under new section 4(g)(10)(ii) of 
        the Railroad Retirement Act of 1974 (45 U.S.C. 
        231c(g)(10)(ii)), as added by subsection (a), shall be made as 
        of the date of the award of the widow's or widower's annuity.

SEC. 102. RETIREMENT AGE RESTORATION.

  (a) Employee Annuities.--Section 3(a)(2) of the Railroad Retirement 
Act of 1974 (45 U.S.C. 231b(a)(2)) is amended by inserting after 
``(2)'' the following new sentence: ``For purposes of this subsection, 
individuals entitled to an annuity under section 2(a)(1)(ii) of this 
Act shall, except for the purposes of recomputations in accordance with 
section 215(f) of the Social Security Act, be deemed to have attained 
retirement age (as defined by section 216(l) of the Social Security 
Act).''.
  (b) Spouse and Survivor Annuities.--Section 4(a)(2) of the Railroad 
Retirement Act of 1974 (45 U.S.C. 231c(a)(2)) is amended by striking 
``if an'' and all that follows through ``section 2(c)(1) of this Act'' 
and inserting ``a spouse entitled to an annuity under section 
2(c)(1)(ii)(B) of this Act''.
  (c) Conforming Repeals.--Sections 3(a)(3), 4(a)(3), and 4(a)(4) of 
the Railroad Retirement Act of 1974 (45 U.S.C. 231b(a)(3), 231c(a)(3), 
and 231c(a)(4)) are repealed.
  (d) Effective Dates.--
          (1) Generally.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to annuities that 
        begin to accrue on or after January 1, 2002.
          (2) Exception.--The amount of the annuity provided for a 
        spouse under section 4(a) of the Railroad Retirement Act of 
        1974 (45 U.S.C. 231c(a)) shall be computed under section 
        4(a)(3) of such Act, as in effect on December 31, 2001, if the 
        annuity amount provided under section 3(a) of such Act (45 
        U.S.C. 231b(a)) for the individual on whose employment record 
        the spouse annuity is based was computed under section 3(a)(3) 
        of such Act, as in effect on December 31, 2001.

SEC. 103. VESTING REQUIREMENT.

  (a) Certain Annuities for Individuals.--Section 2(a) of the Railroad 
Retirement Act of 1974 (45 U.S.C. 231a(a)) is amended--
          (1) by inserting in subdivision (1) ``(or, for purposes of 
        paragraphs (i), (iii), and (v), five years of service, all of 
        which accrues after December 31, 1995)'' after ``ten years of 
        service''; and
          (2) by adding at the end the following new subdivision:
  ``(4) An individual who is entitled to an annuity under paragraph (v) 
of subdivision (1), but who does not have at least ten years of 
service, shall, prior to the month in which the individual attains age 
62, be entitled only to an annuity amount computed under section 3(a) 
of this Act (without regard to section 3(a)(2) of this Act) or section 
3(f)(3) of this Act. Upon attainment of age 62, such an individual may 
also be entitled to an annuity amount computed under section 3(b), but 
such annuity amount shall be reduced for early retirement in the same 
manner as if the individual were entitled to an annuity under section 
2(a)(1)(iii).''.
  (b) Computation Rule for Individuals' Annuities.--Section 3(a) of the 
Railroad Retirement Act of 1974 (45 U.S.C. 231b(a)), as amended by 
section 102 of this Act, is further amended by adding at the end the 
following new subdivision:
  ``(3) If an individual entitled to an annuity under section 
2(a)(1)(i) or (iii) of this Act on the basis of less than ten years of 
service is entitled to a benefit under section 202(a), section 202(b), 
or section 202(c) of the Social Security Act which began to accrue 
before the annuity under section 2(a)(1)(i) or (iii) of this Act, the 
annuity amount provided such individual under this subsection, shall be 
computed as though the annuity under this Act began to accrue on the 
later of (A) the date on which the benefit under section 202(a), 
section 202(b), or section 202(c) of the Social Security Act began, or 
(B) the date on which the individual first met the conditions for 
entitlement to an age reduced annuity under this Act other than the 
conditions set forth in sections 2(e)(1) and 2(e)(2) of this Act and 
the requirement that an application be filed.''.
  (c) Survivors' Annuities.--Section 2(d)(1) of the Railroad Retirement 
Act of 1974 (45 U.S.C. 231a(d)(1)) is amended by inserting ``(or five 
years of service, all of which accrues after December 31, 1995)'' after 
``ten years of service''.
  (d) Limitation on Annuity Amounts.--Section 2 of the Railroad 
Retirement Act of 1974 (45 U.S.C. 231a) is amended by adding at the end 
the following new subsection:
  ``(i) An individual entitled to an annuity under this section who has 
completed five years of service, all of which accrues after 1995, but 
who has not completed ten years of service, and the spouse, divorced 
spouse, and survivors of such individual, shall not be entitled to an 
annuity amount provided under section 3(a), section 4(a), or section 
4(f) of this Act unless the individual, or the individual's spouse, 
divorced spouse, or survivors, would be entitled to a benefit under 
title II of the Social Security Act on the basis of the individual's 
employment record under both this Act and title II of the Social 
Security Act.''.
  (e) Computation Rule for Spouses' Annuities.--Section 4(a) of the 
Railroad Retirement Act of 1974 (45 U.S.C. 231c(a)), as amended by 
section 102 of this Act, is further amended by adding at the end the 
following new subdivision:
  ``(3) If a spouse entitled to an annuity under section 
2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), or section 2(c)(2) of this Act 
or a divorced spouse entitled to an annuity under section 2(c)(4) of 
this Act on the basis of the employment record of an employee who will 
have completed less than 10 years of service is entitled to a benefit 
under section 202(a), section 202(b), or section 202(c) of the Social 
Security Act which began to accrue before the annuity under section 
2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), section 2(c)(2), or section 
2(c)(4) of this Act, the annuity amount provided under this subsection 
shall be computed as though the annuity under this Act began to accrue 
on the later of (A) the date on which the benefit under section 202(a), 
section 202(b), or section 202(c) of the Social Security Act began or 
(B) the first date on which the annuitant met the conditions for 
entitlement to an age reduced annuity under this Act other than the 
conditions set forth in sections 2(e)(1) and 2(e)(2) of this Act and 
the requirement that an application be filed.''.
  (f)  Application Deeming Provision.--Section 5(b) of the Railroad 
Retirement Act of 1974 (45 U.S.C. 231d(b)) is amended by striking the 
second sentence and inserting the following new sentence: ``An 
application filed with the Board for an employee annuity, spouse 
annuity, or divorced spouse annuity on the basis of the employment 
record of an employee who will have completed less than ten years of 
service shall be deemed to be an application for any benefit to which 
such applicant may be entitled under this Act or section 202(a), 
section 202(b), or section 202(c) of the Social Security Act. An 
application filed with the Board for an annuity on the basis of the 
employment record of an employee who will have completed ten years of 
service shall, unless the applicant specified otherwise, be deemed to 
be an application for any benefit to which such applicant may be 
entitled under this Act or title II of the Social Security Act.''.
  (g) Crediting Service Under the Social Security Act.--Section 18(2) 
of the Railroad Retirement Act of 1974 (45 U.S.C. 231q(2)) is amended--
          (1) by inserting ``(or less than five years of service, all 
        of which accrues after December 31, 1995)'' after ``ten years 
        of service'' every place it appears; and
          (2) by inserting ``(or five or more years of service, all of 
        which accrues after December 31, 1995)'' after ``ten or more 
        years of service''.
  (h) Automatic Benefit Eligibility Adjustments.--Section 19 of the 
Railroad Retirement Act of 1974 (45 U.S.C. 231r) is amended--
          (1) by inserting ``(or five or more years of service, all of 
        which accrues after December 31, 1995)'' after ``ten years of 
        service'' in subsection (c); and
          (2) by inserting ``(or five or more years of service, all of 
        which accrues after December 31, 1995)'' after ``ten years of 
        service'' in subsection (d)(2).
  (i) Conforming Amendments.--
          (1) Section 6(e)(1) of the Railroad Retirement Act of 1974 
        (45 U.S.C. 231e(1)) is amended by inserting ``(or five or more 
        years of service, all of which accrues after December 31, 
        1995)'' after ``ten years of service''.
          (2) Section 7(b)(2)(A) of the Railroad Retirement Act of 1974 
        (45 U.S.C. 231f(b)(2)(A)) is amended by inserting ``(or five or 
        more years of service, all of which accrues after December 31, 
        1995)'' after ``ten years of service''.
          (3) Section 205(i) of the Social Security Act (42 U.S.C. 
        405(i)) is amended by inserting ``(or five or more years of 
        service, all of which accrues after December 31, 1995)'' after 
        ``ten years of service''.
          (4) Section 6(b)(2) of the Railroad Retirement Act of 1974 
        (45 U.S.C. 231e(b)(2)) is amended by inserting ``(or five or 
        more years of service, all of which accrues after December 31, 
        1995)'' after ``ten years of service'' the second place it 
        appears.
  (j) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2002.

SEC. 104. REPEAL OF RAILROAD RETIREMENT MAXIMUM.

  (a) Employee Annuities.--
          (1) In general.--Section 3(f) of the Railroad Retirement Act 
        of 1974 (45 U.S.C. 231b(f)) is amended--
                  (A) by striking subdivision (1); and
                  (B) by redesignating subdivisions (2) and (3) as 
                subdivisions (1) and (2), respectively.
          (2) Conforming amendments.--
                  (A) The first sentence of section 3(f)(1) of the 
                Railroad Retirement Act of 1974 (45 U.S.C. 231b(f)(1)), 
                as redesignated by paragraph (1)(B), is amended by 
                striking ``, without regard to the provisions of 
                subdivision (1) of this subsection,''.
                  (B) Paragraphs (i) and (ii) of section 7(d)(2) of the 
                Railroad Retirement Act of 1974 (45 U.S.C. 231f(d)(2)) 
                are each amended by striking ``section 3(f)(3)'' and 
                inserting ``section 3(f)(2)''.
  (b) Spouse and Survivor Annuities.--Section 4 of the Railroad 
Retirement Act of 1974 (45 U.S.C. 231c) is amended by striking 
subsection (c).
  (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2002, and shall apply to annuity amounts accruing 
for months after December 2001.

SEC. 105. INVESTMENT OF RAILROAD RETIREMENT ASSETS.

  (a) Establishment of Railroad Retirement Investment Trust.--Section 
15 of the Railroad Retirement Act of 1974 (45 U.S.C. 231n) is amended 
by inserting after subsection (i) the following new subsection:
  ``(j) Railroad Retirement Investment Trust.--
          ``(1) Establishment.--The Railroad Retirement Investment 
        Trust (hereinafter in this subsection referred to as the 
        `Trust') is hereby established as a trust domiciled in the 
        District of Columbia and shall, to the extent not inconsistent 
        with this Act, be subject to the laws of the District of 
        Columbia applicable to such trusts. The Trust shall manage and 
        invest its assets in the manner set forth in this subsection.
          ``(2) Not a federal agency or instrumentality.--The Trust is 
        not a department, agency, or instrumentality of the Government 
        of the United States and shall not be subject to title 31, 
        United States Code.
          ``(3) Board of trustees.--
                  ``(A) Generally.--The Trust shall have a Board of 
                Trustees, consisting of 7 members, each appointed by a 
                unanimous vote of the Railroad Retirement Board. The 
                Railroad Retirement Board may remove any member so 
                appointed by unanimous vote. Of the members, 3 shall 
                represent the interests of labor, 3 shall represent the 
                interests of management, and 1 shall represent the 
                interests of the general public. The members of the 
                Board of Trustees shall not be considered officers or 
                employees of the Government of the United States.
                  ``(B) Qualifications.--Members of the Board of 
                Trustees shall be appointed only from among persons who 
                have experience and expertise in the management of 
                financial investments and pension plans. No member of 
                the Railroad Retirement Board shall be eligible to be a 
                member of the Board of Trustees.
                  ``(C) Terms.--Except as provided in this 
                subparagraph, each member shall be appointed for a 3-
                year term. The initial members appointed under this 
                paragraph shall be divided into equal groups so nearly 
                as may be, of which one group will be appointed for a 
                1-year term, one for a 2-year term, and one for a 3-
                year term. A vacancy in the Board of Trustees shall not 
                affect the powers of the Board of Trustees and shall be 
                filled in the same manner as the selection of the 
                member whose departure caused the vacancy. Upon the 
                expiration of a term of a member of the Board of 
                Trustees, that member shall continue to serve until a 
                successor is appointed.
          ``(4) Powers of the board of trustees.--The Board of Trustees 
        shall--
                  ``(A) retain independent advisers to assist it in the 
                formulation and adoption of its investment guidelines;
                  ``(B) retain independent investment managers to 
                invest the assets of the Trust in a manner consistent 
                with such investment guidelines;
                  ``(C) invest assets in the Trust, pursuant to the 
                policies adopted in subparagraph (A);
                  ``(D) pay administrative expenses of the Trust from 
                the assets in the Trust; and
                  ``(E) transfer money to the disbursing agent or as 
                otherwise provided in section 7(b)(4), to pay benefits 
                payable under this Act from the assets of the Trust.
          ``(5) Reporting requirements and fiduciary standards.--The 
        following reporting requirements and fiduciary standards shall 
        apply with respect to the Trust:
                  ``(A) Duties of the board of trustees.--The Trust and 
                each member of the Board of Trustees shall discharge 
                their duties with respect to the assets of the Trust 
                solely in the interest of the Railroad Retirement Board 
                and through it, the participants and beneficiaries of 
                the programs funded under this Act--
                          ``(i) for the exclusive purpose of--
                                  ``(I) providing benefits to 
                                participants and their beneficiaries; 
                                and
                                  ``(II) defraying reasonable expenses 
                                of administering the functions of the 
                                Trust;
                          ``(ii) with the care, skill, prudence, and 
                        diligence under the circumstances then 
                        prevailing that a prudent person acting in a 
                        like capacity and familiar with such matters 
                        would use in the conduct of an enterprise of a 
                        like character and with like aims;
                          ``(iii) by diversifying investments so as to 
                        minimize the risk of large losses, unless under 
                        the circumstances it is clearly prudent not to 
                        do so; and
                          ``(iv) in accordance with Trust governing 
                        documents and instruments insofar as such 
                        documents and instruments are consistent with 
                        this Act.
                  ``(B) Prohibitions with respect to members of the 
                board of trustees.--No member of the Board of Trustees 
                shall--
                          ``(i) deal with the assets of the Trust in 
                        the trustee's own interest or for the trustee's 
                        own account;
                          ``(ii) in an individual or in any other 
                        capacity act in any transaction involving the 
                        assets of the Trust on behalf of a party (or 
                        represent a party) whose interests are adverse 
                        to the interests of the Trust, the Railroad 
                        Retirement Board, or the interests of 
                        participants or beneficiaries; or
                          ``(iii) receive any consideration for the 
                        trustee's own personal account from any party 
                        dealing with the assets of the Trust.
                  ``(C) Exculpatory provisions and insurance.--Any 
                provision in an agreement or instrument that purports 
                to relieve a trustee from responsibility or liability 
                for any responsibility, obligation, or duty under this 
                Act shall be void: Provided, however, That nothing 
                shall preclude--
                          ``(i) the Trust from purchasing insurance for 
                        its trustees or for itself to cover liability 
                        or losses occurring by reason of the act or 
                        omission of a trustee, if such insurance 
                        permits recourse by the insurer against the 
                        trustee in the case of a breach of a fiduciary 
                        obligation by such trustee;
                          ``(ii) a trustee from purchasing insurance to 
                        cover liability under this section from and for 
                        his own account; or
                          ``(iii) an employer or an employee 
                        organization from purchasing insurance to cover 
                        potential liability of one or more trustees 
                        with respect to their fiduciary 
                        responsibilities, obligations, and duties under 
                        this section.
                  ``(D) Bonding.--Every trustee and every person who 
                handles funds or other property of the Trust (hereafter 
                in this subsection referred to as `Trust official') 
                shall be bonded. Such bond shall provide protection to 
                the Trust against loss by reason of acts of fraud or 
                dishonesty on the part of any Trust official, directly 
                or through the connivance of others, and shall be in 
                accordance with the following:
                          ``(i) The amount of such bond shall be fixed 
                        at the beginning of each fiscal year of the 
                        Trust by the Railroad Retirement Board. Such 
                        amount shall not be less than 10 percent of the 
                        amount of the funds handled. In no case shall 
                        such bond be less than $1,000 nor more than 
                        $500,000, except that the Railroad Retirement 
                        Board, after consideration of the record, may 
                        prescribe an amount in excess of $500,000, 
                        subject to the 10 per centum limitation of the 
                        preceding sentence.
                          ``(ii) It shall be unlawful for any Trust 
                        official to receive, handle, disburse, or 
                        otherwise exercise custody or control of any of 
                        the funds or other property of the Trust 
                        without being bonded as required by this 
                        subsection and it shall be unlawful for any 
                        Trust official, or any other person having 
                        authority to direct the performance of such 
                        functions, to permit such functions, or any of 
                        them, to be performed by any Trust official, 
                        with respect to whom the requirements of this 
                        subsection have not been met.
                          ``(iii) It shall be unlawful for any person 
                        to procure any bond required by this subsection 
                        from any surety or other company or through any 
                        agent or broker in whose business operations 
                        such person has any control or significant 
                        financial interest, direct or indirect.
                  ``(E) Audit and report.--
                          ``(i) The Trust shall annually engage an 
                        independent qualified public accountant to 
                        audit the financial statements of the Trust.
                          ``(ii) The Trust shall submit an annual 
                        management report to the Congress not later 
                        than 180 days after the end of the Trust's 
                        fiscal year. A management report under this 
                        subsection shall include--
                                  ``(I) a statement of financial 
                                position;
                                  ``(II) a statement of operations;
                                  ``(III) a statement of cash flows;
                                  ``(IV) a statement on internal 
                                accounting and administrative control 
                                systems;
                                  ``(V) the report resulting from an 
                                audit of the financial statements of 
                                the Trust conducted under clause (i); 
                                and
                                  ``(VI) any other comments and 
                                information necessary to inform the 
                                Congress about the operations and 
                                financial condition of the Trust.
                          ``(iii) The Trust shall provide the 
                        President, the Railroad Retirement Board, and 
                        the Director of the Office of Management and 
                        Budget a copy of the management report when it 
                        is submitted to Congress.
                  ``(F) Enforcement.--The Railroad Retirement Board may 
                bring a civil action--
                          ``(i) to enjoin any act or practice by the 
                        Trust, its Board of Trustees, or its employees 
                        or agents that violates any provision of this 
                        Act; or
                          ``(ii) to obtain other appropriate relief to 
                        redress such violations, or to enforce any 
                        provisions of this Act.
          ``(6) Application of fiduciary standards to railroad 
        retirement board.--
                  ``(A) In general.--The provisions of paragraph (5)(A) 
                shall apply to the members of the Railroad Retirement 
                Board in the discharge of their duty to appoint the 
                members of the Board of Trustees under paragraph (3)(A) 
                in the same manner as such provisions apply to the 
                members of the Board of Trustees.
                  ``(B) Enforcement.--For purposes of this paragraph, 
                the provisions of paragraph (5)(F) shall apply by 
                substituting `the Secretary of Labor' for `the Railroad 
                Retirement Board'.
          ``(7) Rules and administrative powers.--The Board of Trustees 
        shall have the authority to make rules to govern its 
        operations, employ professional staff, and contract with 
        outside advisers, including the Railroad Retirement Board, to 
        provide legal, accounting, investment advisory, or other 
        services necessary for the proper administration of this 
        subsection. In the case of contracts with investment advisory 
        services, compensation for such services may be on a fixed 
        contract fee basis or on such other terms and conditions as are 
        customary for such services.
          ``(8) Quorum.--Five members of the Board of Trustees 
        constitute a quorum to do business. Investment guidelines must 
        be adopted by a unanimous vote of the entire Board of Trustees. 
        All other decisions of the Board of Trustees shall be decided 
        by a majority vote of the quorum present. All decisions of the 
        Board of Trustees shall be entered upon the records of the 
        Board of Trustees.
          ``(9) Funding.--The expenses of the Trust and the Board of 
        Trustees incurred under this subsection shall be paid from the 
        Trust.''.
  (b) Conforming and Technical Amendments Governing Investments.--
Subsection 15(e) of the Railroad Retirement Act of 1974 (45 U.S.C. 
231n(e)) is amended--
          (1) in the first sentence, by striking ``, the Dual Benefits 
        Payments Account'' and all that follows through ``may be made 
        only'' in the second sentence and inserting ``and the Dual 
        Benefits Payments Account as are not transferred to the 
        Railroad Retirement Investment Trust as the Board may 
        determine'';
          (2) by striking ``the Second Liberty Bond Act, as amended'' 
        and inserting ``chapter 31 of title 31''; and
          (3) by striking ``the foregoing requirements'' and inserting 
        ``the requirements of this subsection''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on the first day of the month that begins more than 30 days 
after enactment.

SEC. 106. ELIMINATION OF SUPPLEMENTAL ANNUITY ACCOUNT.

  (a) Source of Payments.--Section 7(c)(1) of the Railroad Retirement 
Act of 1974 (45 U.S.C. 231f(c)(1)) is amended by striking ``payments of 
supplemental annuities under section 2(b) of this Act shall be made 
from the Railroad Retirement Supplemental Account, and''.
  (b) Elimination of Account.--Section 15(c) of the Railroad Retirement 
Act of 1974 (45 U.S.C. 231n(c)) is repealed.
  (c) Amendment to Railroad Retirement Account.--Section 15(a) of the 
Railroad Retirement Act of 1974 (45 U.S.C. 231n(a)) is amended by 
striking ``, except those portions of the amounts covered into the 
Treasury under sections 3211(b),'' and all that follows through the end 
of the subsection and inserting a period.
  (d) Transfer.--
          (1) Determination.--As soon as possible after December 31, 
        2001, the Railroad Retirement Board shall--
                  (A) determine the amount of funds in the Railroad 
                Retirement Supplemental Account under section 15(c) of 
                the Railroad Retirement Act of 1974 (45 U.S.C. 231n(c)) 
                as of the date of such determination; and
                  (B) direct the Secretary of the Treasury to transfer 
                such funds to the Railroad Retirement Investment Trust 
                under section 15(j) of such Act (as added by section 
                105).
          (2) Transfer by the secretary of the treasury.--The Secretary 
        of the Treasury shall make the transfer described in paragraph 
        (1).
  (e) Effective Date.--
          (1) In general.--Subject to paragraph (2), the amendments 
        made by subsections (a), (b), and (c) shall take effect January 
        1, 2002.
          (2) Account in existence until transfer made.--The Railroad 
        Retirement Supplemental Account under section 15(c) of the 
        Railroad Retirement Act of 1974 (45 U.S.C. 231n(c)) shall 
        continue to exist until the date that the Secretary of the 
        Treasury makes the transfer described in subsection (d)(2).

SEC. 107. TRANSFER AUTHORITY REVISIONS.

  (a) Railroad Retirement Account.--Section 15 of the Railroad 
Retirement Act of 1974 (45 U.S.C. 231n) is amended by adding after 
subsection (j) the following new subsection:
  ``(k) Transfers to the Trust.--The Board shall, upon establishment of 
the Railroad Retirement Investment Trust and from time to time 
thereafter, direct the Secretary of the Treasury to transfer, in such 
manner as will maximize the investment returns to the Railroad 
Retirement system, that portion of the Railroad Retirement Account that 
is not needed to pay current administrative expenses of the Board to 
the Railroad Retirement Investment Trust. The Secretary shall make that 
transfer.''.
  (b) Transfers From the Railroad Retirement Investment Trust.--Section 
15 of the Railroad Retirement Act of 1974 (45 U.S.C. 231n), as amended 
by subsection (a), is further amended by adding after subsection (k) 
the following new subsection:
  ``(l) Railroad Retirement Investment Trust.--The Railroad Retirement 
Investment Trust shall from time to time transfer to the disbursing 
agent described in section 7(b)(4) or as otherwise directed by the 
Railroad Retirement Board pursuant to section 7(b)(4), such amounts as 
may be necessary to pay benefits under this Act (other than benefits 
paid from the Social Security Equivalent Benefit Account or the Dual 
Benefit Payments Account).''.
  (c) Social Security Equivalent Benefit Account.--
          (1) Transfers to trust.--Section 15A(d)(2) of the Railroad 
        Retirement Act of 1974 (45 U.S.C. 231n-1(d)(2)) is amended to 
        read as follows:
  ``(2) Upon establishment of the Railroad Retirement Investment Trust 
and from time to time thereafter, the Board shall direct the Secretary 
of the Treasury to transfer, in such manner as will maximize the 
investment returns to the Railroad Retirement system, the balance of 
the Social Security Equivalent Benefit Account not needed to pay 
current benefits and administrative expenses required to be paid from 
that Account to the Railroad Retirement Investment Trust, and the 
Secretary shall make that transfer. Any balance transferred under this 
paragraph shall be used by the Railroad Retirement Investment Trust 
only to pay benefits under this Act or to purchase obligations of the 
United States that are backed by the full faith and credit of the 
United States pursuant to chapter 31 of title 31, United States Code. 
The proceeds of sales of, and the interest income from, such 
obligations shall be used by the Trust only to pay benefits under this 
Act.''.
          (2) Transfers to disbursing agent.--Section 15A(c)(1) of the 
        Railroad Retirement Act of 1974 (45 U.S.C. 231n-1(c)(1)) is 
        amended by adding at the end the following new sentence: ``The 
        Secretary shall from time to time transfer to the disbursing 
        agent under section 7(b)(4) amounts necessary to pay those 
        benefits.''.
          (3) Conforming amendment.--Section 15A(d)(1) of the Railroad 
        Retirement Act of 1974 (45 U.S.C. 231n-1(d)(1)) is amended by 
        striking the second and third sentences.
  (d) Dual Benefits Payments Account.--Section 15(d)(1) of the Railroad 
Retirement Act of 1974 (45 U.S.C. 231n(d)(1)) is amended by adding at 
the end the following new sentence: ``The Secretary of the Treasury 
shall from time to time transfer from the Dual Benefits Payments 
Account to the disbursing agent under section 7(b)(4) amounts necessary 
to pay benefits payable from that Account.''.
  (e) Certification by the Board and Payment.--Paragraph (4) of section 
7(b) of the Railroad Retirement Act of 1974 (45 U.S.C. 231f(b)(4)) is 
amended to read as follows:
  ``(4)(A) The Railroad Retirement Board, after consultation with the 
Board of Trustees of the Railroad Retirement Investment Trust and the 
Secretary of the Treasury, shall enter into an arrangement with a 
nongovernmental financial institution to serve as disbursing agent for 
benefits payable under this Act who shall disburse consolidated 
benefits under this Act to each recipient. Pending the taking effect of 
that arrangement, benefits shall be paid as under the law in effect 
prior to the enactment of the Railroad Retirement and Survivors' 
Improvement Act of 2001.
  ``(B) The Board shall from time to time certify--
          ``(i) to the Secretary of the Treasury the amounts required 
        to be transferred from the Social Security Equivalent Benefit 
        Account and the Dual Benefits Payments Account to the 
        disbursing agent to make payments of benefits and the Secretary 
        of the Treasury shall transfer those amounts;
          ``(ii) to the Board of Trustees of the Railroad Retirement 
        Investment Trust the amounts required to be transferred from 
        the Railroad Retirement Investment Trust to the disbursing 
        agent to make payments of benefits and the Board of Trustees 
        shall transfer those amounts; and
          ``(iii) to the disbursing agent the name and address of each 
        individual entitled to receive a payment, the amount of such 
        payment, and the time at which the payment should be made.''.
  (f) Benefit Payments.--Section 7(c)(1) of the Railroad Retirement Act 
of 1974 (45 U.S.C. 231f(c)(1)) is amended--
          (1) by striking ``from the Railroad Retirement Account'' and 
        inserting ``by the disbursing agent under subsection (b)(4) 
        from money transferred to it from the Railroad Retirement 
        Investment Trust or the Social Security Equivalent Benefit 
        Account, as the case may be''; and
          (2) by inserting ``by the disbursing agent under subsection 
        (b)(4) from money transferred to it'' after ``Public Law 93-445 
        shall be made''.
  (g) Transitional Rule for Existing Obligation.--In making transfers 
under sections 15(k) and 15A(d)(2) of the Railroad Retirement Act of 
1974, as amended by subsections (a) and (c), respectively, the Railroad 
Retirement Board shall consult with the Secretary of the Treasury to 
design an appropriate method to transfer obligations held as of the 
date of enactment of this Act or to convert such obligations to cash at 
the discretion of the Railroad Retirement Board prior to transfer. The 
Railroad Retirement Investment Trust may hold to maturity any 
obligations so received or may redeem them prior to maturity, as the 
Trust deems appropriate.

SEC. 108. ANNUAL RATIO PROJECTIONS AND CERTIFICATIONS BY THE RAILROAD 
                    RETIREMENT BOARD.

  (a) Projections.--Section 22(a)(1) of the Railroad Retirement Act of 
1974 (45 U.S.C. 231u(a)(1)) is amended--
          (1) by inserting after the first sentence the following new 
        sentence: ``On or before May 1 of each year beginning in 2003, 
        the Railroad Retirement Board shall compute its projection of 
        the account benefits ratio and the average account benefits 
        ratio (as defined by section 3241(c) of the Internal Revenue 
        Code of 1986) for each of the next succeeding five fiscal 
        years.''; and
          (2) by striking ``the projection prepared pursuant to the 
        preceding sentence'' and inserting ``the projections prepared 
        pursuant to the preceding two sentences''.
  (b) Certifications.--The Railroad Retirement Act of 1974 (45 U.S.C. 
231 et seq.) is amended by adding at the end the following new section:
       ``computation and certification of account benefit ratios
  ``Sec. 23. (a) Initial Computation and Certification.--On or before 
November 1, 2003, the Railroad Retirement Board shall--
          ``(1) compute the account benefits ratios for each of the 
        most recent 10 preceding fiscal years, and
          ``(2) certify the account benefits ratios for each such 
        fiscal year to the Secretary of the Treasury.
  ``(b) Computations and Certifications After 2003.--On or before 
November 1 of each year after 2003, the Railroad Retirement Board 
shall--
          ``(1) compute the account benefits ratio for the fiscal year 
        ending in such year, and
          ``(2) certify the account benefits ratio for such fiscal year 
        to the Secretary of the Treasury.
  ``(c) Definition.--As used in this section, the term `account 
benefits ratio' has the meaning given that term in section 3241(c) of 
the Internal Revenue Code of 1986.''.

       TITLE II--AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986

SEC. 201. AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.

  Except as otherwise provided, whenever in this title an amendment or 
repeal is expressed in terms of an amendment to, or repeal of, a 
section or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue Code of 
1986.

SEC. 202. EXEMPTION FROM TAX FOR RAILROAD RETIREMENT INVESTMENT TRUST.

  Subsection (c) of section 501 is amended by adding at the end the 
following new paragraph:
          ``(28) The Railroad Retirement Investment Trust established 
        under section 15(j) of the Railroad Retirement Act of 1974.''.

SEC. 203. REPEAL OF SUPPLEMENTAL ANNUITY TAX.

  (a) Repeal of Tax on Employee Representatives.--Section 3211 is 
amended by striking subsection (b).
  (b) Repeal of Tax on Employers.--Section 3221 is amended by striking 
subsections (c) and (d) and by redesignating subsection (e) as 
subsection (c).
  (c) Effective Date.--The amendments made by this section shall apply 
to calendar years beginning after December 31, 2001.

SEC. 204. EMPLOYER, EMPLOYEE REPRESENTATIVE, AND EMPLOYEE TIER 2 TAX 
                    RATE ADJUSTMENTS.

  (a) Rate of Tax on Employers.--Subsection (b) of section 3221 is 
amended to read as follows:
  ``(b) Tier 2 Tax.--
          ``(1) In general.--In addition to other taxes, there is 
        hereby imposed on every employer an excise tax, with respect to 
        having individuals in his employ, equal to the applicable 
        percentage of the compensation paid during any calendar year by 
        such employer for services rendered to such employer.
          ``(2) Applicable percentage.--For purposes of paragraph (1), 
        the term `applicable percentage' means--
                  ``(A) 15.6 percent in the case of compensation paid 
                during 2002,
                  ``(B) 14.2 percent in the case of compensation paid 
                during 2003, and
                  ``(C) in the case of compensation paid during any 
                calendar year after 2003, the percentage determined 
                under section 3241 for such calendar year.''.
  (b) Rate of Tax on Employee Representatives.--Section 3211, as 
amended by section 203, is amended by striking subsection (a) and 
inserting the following new subsections:
  ``(a) Tier 1 Tax.--In addition to other taxes, there is hereby 
imposed on the income of each employee representative a tax equal to 
the applicable percentage of the compensation received during any 
calendar year by such employee representative for services rendered by 
such employee representative. For purposes of the preceding sentence, 
the term `applicable percentage' means the percentage equal to the sum 
of the rates of tax in effect under subsections (a) and (b) of section 
3101 and subsections (a) and (b) of section 3111 for the calendar year.
  ``(b) Tier 2 Tax.--
          ``(1) In general.--In addition to other taxes, there is 
        hereby imposed on the income of each employee representative a 
        tax equal to the applicable percentage of the compensation 
        received during any calendar year by such employee 
        representatives for services rendered by such employee 
        representative.
          ``(2) Applicable percentage.--For purposes of paragraph (1), 
        the term `applicable percentage' means--
                  ``(A) 14.75 percent in the case of compensation 
                received during 2002,
                  ``(B) 14.20 percent in the case of compensation 
                received during 2003, and
                  ``(C) in the case of compensation received during any 
                calendar year after 2003, the percentage determined 
                under section 3241 for such calendar year.
  ``(c) Cross Reference.--

                  ``For application of different contribution bases 
with respect to the taxes imposed by subsections (a) and (b), see 
section 3231(e)(2).''.
  (c) Rate of Tax on Employees.--Subsection (b) of section 3201 is 
amended to read as follows:
  ``(b) Tier 2 Tax.--
          ``(1) In general.--In addition to other taxes, there is 
        hereby imposed on the income of each employee a tax equal to 
        the applicable percentage of the compensation received during 
        any calendar year by such employee for services rendered by 
        such employee.
          ``(2) Applicable percentage.--For purposes of paragraph (1), 
        the term `applicable percentage' means--
                  ``(A) 4.90 percent in the case of compensation 
                received during 2002 or 2003, and
                  ``(B) in the case of compensation received during any 
                calendar year after 2003, the percentage determined 
                under section 3241 for such calendar year.''.
  (d) Determination of Rate.--Chapter 22 is amended by adding at the 
end the following new subchapter:

             ``Subchapter E--Tier 2 Tax Rate Determination

                              ``Sec. 3241. Determination of tier 2 tax 
                                        rate based on average account 
                                        benefits ratio.

``SEC. 3241. DETERMINATION OF TIER 2 TAX RATE BASED ON AVERAGE ACCOUNT 
                    BENEFITS RATIO.

  ``(a) In General.--For purposes of sections 3201(b), 3211(b), and 
3221(b), the applicable percentage for any calendar year is the 
percentage determined in accordance with the table in subsection (b).
  ``(b) Tax Rate Schedule.--


------------------------------------------------------------------------
 ``Average account benefits ratio       Applicable
-----------------------------------   percentage for       Applicable
                                     sections 3211(b)    percentage for
    At least        But less than      and 3221(b)      section 3201(b)
------------------------------------------------------------------------
                            2.5                22.1                4.9
          2.5               3.0                18.1                4.9
          3.0               3.5                15.1                4.9
          3.5               4.0                14.1                4.9
          4.0               6.1                13.1                4.9
          6.1               6.5                12.6                4.4
          6.5               7.0                12.1                3.9
          7.0               7.5                11.6                3.4
          7.5               8.0                11.1                2.9
          8.0               8.5                10.1                1.9
          8.5               9.0                 9.1                0.9
          9.0                                   8.2                  0
------------------------------------------------------------------------

  ``(c) Definitions Related to Determination of Rates of Tax.--
          ``(1) Average account benefits ratio.--For purposes of this 
        section, the term `average account benefits ratio' means, with 
        respect to any calendar year, the average determined by the 
        Secretary of the account benefits ratios for the 10 most recent 
        fiscal years ending before such calendar year. If the amount 
        determined under the preceding sentence is not a multiple of 
        0.1, such amount shall be increased to the next highest 
        multiple of 0.1.
          ``(2) Account benefits ratio.--For purposes of this section, 
        the term `account benefits ratio' means, with respect to any 
        fiscal year, the amount determined by the Railroad Retirement 
        Board by dividing the fair market value of the assets in the 
        Railroad Retirement Account and of the Railroad Retirement 
        Investment Trust (and for years before 2002, the Social 
        Security Equivalent Benefits Account) as of the close of such 
        fiscal year by the total benefits and administrative expenses 
        paid from the Railroad Retirement Account and the Railroad 
        Retirement Investment Trust during such fiscal year.
  ``(d) Notice.--No later than December 1 of each calendar year, the 
Secretary shall publish a notice in the Federal Register of the rates 
of tax determined under this section which are applicable for the 
following calendar year.''.
  (e) Conforming Amendments.--
          (1) Section 24(d)(3)(A)(iii) is amended by striking ``section 
        3211(a)(1)'' and inserting ``section 3211(a)''.
          (2) Section 72(r)(2)(B)(i) is amended by striking 
        ``3211(a)(2)'' and inserting ``3211(b)''.
          (3) Paragraphs (2)(A)(iii)(II) and (4)(A) of section 3231(e) 
        are amended by striking ``3211(a)(1)'' and inserting 
        ``3211(a)''.
          (4) Section 3231(e)(2)(B)(ii)(I) is amended by striking 
        ``3211(a)(2)'' and inserting ``3211(b)''.
          (5) The table of subchapters for chapter 22 is amended by 
        adding at the end the following new item:

                              ``Subchapter E. Tier 2 tax rate 
                                        determination.''.

  (f) Effective Date.--The amendments made by this section shall apply 
to calendar years beginning after December 31, 2001.

                          Purpose of the Bill

    H.R. 1140 modernizes the federally administered railroad 
retirement system by improving benefits (including higher 
annuities for retirees' surviving spouses, lowered pension 
retirement age, and reduced vesting period), reducing payroll 
tax burdens (with future automatic tax rate adjustments to 
reflect the performance of pension assets), and allowing 
professionally managed diversified investment of pension assets 
through an investment trust to produce higher future investment 
returns.

                Background and Need for the Legislation

    The railroad retirement system was created separate from 
the Social Security program through a series of laws enacted in 
the 1930's, culminating in the Railroad Retirement and 
Carriers' Taxing Acts of 1937. There was ample precedent for 
legislation taking into account the particular circumstances of 
the rail industry. Numerous laws pertaining to rail operations 
and safety, as well as the Railway Labor Act of 1926, had been 
enacted since the Interstate Commerce Act of 1887, and many 
more have been enacted since the 1930's.
    The need for a separate railroad retirement system arose 
from the inadequate financing of many of the railroads' 
preexisting private pension plans, and a desire to promote 
employment opportunities for younger workers in the nation's 
largest industry through the creation of a system of immediate 
benefit payments to older workers based on accumulated service. 
Social Security did not begin paying benefits until 1940 and 
did not credit service prior to 1937.
    Substantive changes to the Railroad Retirement and 
Carriers' Taxing Acts of 1937, including its replacement by the 
current Railroad Retirement Act of 1974, and substantive 
amendments to that latter Act have generally been enacted on 
the basis of joint recommendations negotiated by 
representatives of rail labor and management.
    The last major reform of railroad retirement occurred in 
1983 with enactment of the Railroad Retirement Solvency Act. 
This Act raised tier 2 tax rates on both employers and 
employees, and for the first time subjected railroad retirement 
tier 2 benefits to federal income tax. It also raised the age 
at which one can receive a full annuity from 60 with thirty 
years of service to 62 with thirty years of service.
    The railroad retirement system is administered by the 
Railroad Retirement Board, which is an independent agency in 
the executive branch of the United States Government. The Board 
has three members, each of whom is appointed by the President 
and confirmed by the Senate. The Railroad Retirement Act 
requires that one Board Member be appointed upon the 
recommendation of railroad labor and another Member appointed 
on the recommendation of rail management. The Chair is 
appointed to represent the public at large.
    The primary annuities paid under the Railroad Retirement 
Act consist of two different components called tiers. The tier 
1 benefit is based upon both the railroad and non-railroad 
earnings of the railroad employee, using social security 
formulas, and approximates (with some minor exceptions) what 
would be payable under the Social Security Act. Tier 2 benefits 
are based on an employee's railroad service only and are 
computed under benefit formulas in the Railroad Retirement Act. 
Tier 2 is the functional equivalent of a private industry-wide 
pension plan.
    In fiscal year 2000, the Railroad Retirement Board paid 
$8.3 billion in retirement and survivor benefits to 724,000 
beneficiaries. At the end of fiscal year 2000, there were 
308,597 railroad retirees, 161,283 spouses or divorced spouses 
of retirees, and 211,291 survivors receiving railroad 
retirement benefits.
    Payroll taxes on railroad employers and employees serve as 
the primary source of funding for railroad retirement benefits. 
Other sources include fund transfers under the financial 
interchange with the Social Security system for tier 1 
benefits; investment earnings from the trust funds; general 
revenue appropriations for vested dual benefits; income taxes 
on benefits; and a work hour tax paid by railroad employers 
called the supplemental annuity tax.
    The changes made in H.R. 1140 apply only to the tier 2 
component of railroad retirement and are funded entirely by 
payroll taxes on railroad employers and employees and earnings 
from the investment of those taxes. Currently, railroads pay a 
16.1 percent payroll tax and employees pay a 4.9 percent 
payroll tax for tier 2 benefits. H.R. 1140 would not create any 
general fund subsidies to the railroad retirement system.

            Legislative History and Committee Consideration

    On September 17, 1998, the Subcommittee on Railroads held a 
hearing on H. Con. Res. 52, modifying the Railroad Retirement 
tier 2 Benefits for Widows and Widowers, which had been 
introduced by Congressman Jack Quinn (R-NY). H. Con. Res. 52 
was a concurrent resolution urging that the railroad industry, 
including rail labor, management and retiree organizations, 
open discussions for adequately funding an amendment to the 
Railroad Retirement Act of 1974 to modify the guaranteed 
minimum benefit for widows and widowers. Following the hearing, 
rail labor and management initiated discussions on a 
comprehensive reform of railroad retirement.
    H.R. 4844, introduced in the 106th Congress, was 
cosponsored by the bipartisan leadership of the Transportation 
and Infrastructure Committee and the Ways and Means Committee, 
and represented the agreement between management and a majority 
of rail labor that came out of those negotiations. Following 
Committee consideration, H.R. 4844 was brought to the House 
floor, where the bill passed 391-25. The legislation was 
subsequently reported out of the Senate Committee on Finance, 
but not considered on the Senate Floor. The Railroad Retirement 
reform measure was reintroduced in the 107th Congress by 
Chairman of the Transportation and Infrastructure Committee, 
Don Young, and Ranking Member Jim Oberstar, as H.R. 1140. H.R. 
1140 was identical to the House passed version of H.R. 4844. In 
Committee, the Subcommittee on Railroads amended H.R. 1140, 
inserting new effective dates to reflect the passage of time, 
and making other minor technical changes. On May 9, 2001, the 
Subcommittee on Railroads met in open session and favorably 
reported H.R. 1140. On May 16, 2001, the Committee on 
Transportation and Infrastructure met in open session and 
favorably reported H.R. 1140.

                          Summary of H.R. 1140


Changes to the tax structure

    Both Railroad Retirement benefits and payroll tax rates are 
fixed by current law. Thus, changes in the system require 
Congressional action. H.R. 1140 would make the tier 2 tax rates 
more responsive to actual financing needs by the establishment 
of an automatic tax adjustment formula. Under this statutory 
formula, payroll taxes would be raised or lowered 
automatically, without further action by Congress, depending on 
the level of funds available to pay benefits. (A similar system 
of adjustable tax rates for railroad unemployment benefits was 
enacted in 1988.)
    Payroll taxes would be set each calendar year, pursuant to 
a statutory formula. In any calendar year for which the 10-year 
accounts benefits ratio \1\ at the close of the previous fiscal 
year was no lower than 4.0 and no higher than 6.0, the tax 
rates would be set at ``normal'' levels of 13.1 percent for the 
employer and 4.9 percent for the employee. (The proposed 
reduction of the employer tax rate from the current 16.1 
percent to 13.1 percent is discussed below.) These ``normal'' 
rates are projected to keep the average balance at or above a 
4-year benefit reserve over the next 75 years, based on 
improving returns by an estimated 2 percentage points 
(discussed below). If the average fund balance ratio falls 
below 4.0 or exceeds 6.0, the tax rates would vary in 
accordance with the statutory formula. The 4-year minimum 
benefits reserve requirement represents a higher level of 
reserves than the Railroad Retirement Account has had over most 
of the last 40 years. Key features of the operation of the tax 
adjustment mechanism include:
---------------------------------------------------------------------------
    \1\ This is the ratio of the fund balance to annual benefit 
payments and administrative expenses.
---------------------------------------------------------------------------
     Allocation of Tax Rate Changes. Any increase in 
the payroll tax above the normal rates would be borne entirely 
by railroad employers. Any reduction in the rates below the 
normal rates would be divided equally between railroad 
employers and employees.
     Future Benefit Changes. If the average fund 
balance ratio exceeds 6.0, employees may choose between a tier 
2 tax rate reduction specified in the statute, or a benefit 
increase of equal value. Benefit increases would be legislated 
by Congress, and management has agreed to support enactment of 
this legislation.
     Increase in Employee Tax Rate by Additional 
Benefit Equivalent. If any additional benefit is enacted as 
agreed above, the legislation would provide that the employee 
tax rate that otherwise would be effective under the statutory 
formula would be increased by the cost of the benefit.

Investment of assets

    Currently, investment of RRA assets is limited to U.S. 
government securities. Railroad Retirement Board projections 
for the RRA assume an annual return of 6 percent on 
investments. Between 1985 and 1998, the average annual return 
on RRA assets was unusually high at 9.12 percent, but this 
still lagged far behind the average annual return in large 
multi-employer pension plans of 15.17 percent over the same 
period. Under H.R. 1140, authority would be provided for tier 2 
RRA assets to be invested in a new diversified investment 
portfolio, as are assets of private sector pension plans. A 
Railroad Retirement Investment Trust would be established to 
invest the assets of the RRA in a Trust Fund outside of 
Treasury. An independent Board of Trustees would be appointed 
to administer the Trust. The Trustees would be responsible for 
establishing investment guidelines for the prudent management 
of tier 2 assets and for selecting outside investment advisors 
and managers to implement investment policies. There would be 7 
members of the Board of Trustees, all with investment 
experience and selected by a unanimous vote of the Railroad 
Retirement Board.
    In designing this investment proposal, it was assumed that 
investments by the Trust would result in an average annual 
return of 8 percent, i.e., 2 percentage points above current 
projections. Improving performance of the Trust portfolio by 
this amount permits the enhancement of employee benefits and 
the reduction of railroad employer tax rates, while maintaining 
at least an average benefit reserve of 4 years or more. If the 
investment portfolio of the Trust performs well in the future, 
additional employer tax reductions and employee tax reductions 
of equal value would be possible.

Benefit improvements

    More effective management of tier 2 assets would allow for 
the adoption of certain benefit improvements while protecting 
the long-term stability of the railroad retirement system. 
Payment of vested dual benefits and supplemental annuity 
benefits would continue as under current law. The bill would 
provide for the following benefit improvements:
     Expansion of Surviving Spouse Benefit. Surviving 
spouses would inherit the full tier 2 annuity of the deceased 
retiree. Currently, the surviving spouse may receive no more 
than 50 percent of the retiree's annuity.
     Liberalized Early Retirement. Currently, an 
employee with 30 years of service is eligible to retire at age 
62 with no actuarial reduction in benefits. H.R. 1140 would 
allow for early retirement at age 60 with 30 years of service 
without a benefit reduction. As such, the bill would return the 
early retirement eligibility age to its pre-1984 level. The 
spouse of such an employee would also be eligible for an 
unreduced annuity at age 60.\2\
---------------------------------------------------------------------------
    \2\ Post-retirement Health Benefit. As part of the national 
collective bargaining agreement between labor and rail management, an 
early retirement health benefits plan is available for retirees at age 
61. Management and labor have agreed to re-negotiate the agreement to 
lower the eligibility age to 60 and to adjust the maximum lifetime 
benefit for medical inflation, if H.R. 1140 is enacted. This would 
conform eligibility for this private health benefit plan with 
eligibility for early retirement.
---------------------------------------------------------------------------
     Liberalized Vesting. The ten-year service 
requirement to vest for tier 1 and tier 2 annuities would be 
reduced to five years. Any employee with five years of post-
1995 service would be vested. This requirement would be 
consistent with private industry practices.
     Railroad Retirement Act Maximum. The limit on 
certain tier 2 annuities awarded to an employee and an 
employee's spouse would be repealed.

Tax reductions

    Railroad employers currently pay 16.1 percent of taxable 
payroll into the tier 2 account. Improved earnings from 
investing the tier 2 assets would permit a phased reduction of 
employer taxes over the first three years following enactment 
of the proposal. The phase-in would occur as follows: 15.6 
percent in 2002; 14.2 percent in 2003; and 13.1 percent in 
2004. Employee tax rates would continue at the current 4.9 
percent, except as provided under the tax adjustment mechanism 
described above.
    In addition, the supplemental annuity tax (SAT) would be 
eliminated and supplemental annuity benefits would be paid 
directly from the Trust. (There would be no change in 
supplemental annuity benefits paid to eligible retirees.) The 
SAT is a cents-per-hour tax, currently set at 26.0 cents, paid 
only by employers. Benefits are available only to employees 
hired prior to October 1981.

Administration

    H.R. 1140 would continue the basic administrative structure 
of railroad retirement for tier 1, the railroad industry 
counterpart to Social Security. Tier 2 benefits would be paid 
from the Trust, which would be administered by a fiduciary, 
seven-member Board of Trustees. The Board is required to hire 
professional investment managers. Management of the Trust 
assets is subject to fiduciary standards similar to those under 
ERISA.

                     Section-by-Section Explanation


                                title i

Sec. 101. Expansion of widow(er)s' benefit

    The Railroad Retirement Act provides for the payment of an 
annuity to the widow or widower of a deceased railroad 
employee. The annuity is comprised of two components, or tiers. 
The tier 1 component of a Railroad Retirement widow(er)'s 
annuity is based on the employee's combined Railroad Retirement 
and Social Security credits, figured under Social Security 
formulas, and approximates what Social Security would pay if 
railroad work were covered by that system. The widow(er)'s tier 
1 benefit is generally equal to the amount of the tier 1 
benefit that the employee received at the time of his or her 
death, but may be reduced for receipt of certain other 
benefits, including Social Security benefits. The tier 2 
component of a Railroad Retirement widow(er)'s annuity is 
generally equal to fifty percent of the tier 2 benefit that was 
payable to the employee at the time of his or her death. Both 
the widow(er)'s tier 1 and tier 2 benefit components are 
increased by cost-of-living adjustments.
    Section 101 provides a guaranteed amount for widow(er)s 
based on the amount of the tier 1 and tier 2 benefit that would 
have been payable to the employee at the time of the award of 
the widow(er)'s annuity. This initial minimum amount is to be 
calculated at the time of the award of a widow(er)'s annuity 
and is not adjusted thereafter. It is computed by taking the 
amount of the widow(er)'s regular unreduced annuity under the 
current computational provisions of the Railroad Retirement 
Act, except that the tier 2 benefit is increased from 50 
percent of the employee's tier 2 amount to 100 percent of that 
amount. (The unreduced annuity is the amount before any 
deduction on account of work and without regard to any 
reductions for entitlement benefits under the Railroad 
Retirement Act, Title II of the Social Security Act and a 
public service pension.)
    For any month in which the initial minimum amount exceeds 
the unreduced annuity computed under the current law formula, 
the excess amount is added to the widow(er)'s tier 2 benefit. 
Coupled with the tier 1 widow(er)'s benefit, which under 
current law is generally equal to the amount of the employee's 
tier 1 benefit, the new tier 2 benefit computation provides 
widow(er)s with an initial benefit equal to the benefit due the 
employee at the time the widow(er)'s annuity is awarded.
    The amendment is effective on the first day of the first 
full month after enactment. It applies to annuities accruing 
after the effective date. It also applies to annuities 
previously awarded under the current law tier 2 benefit 
formula. The computation of the initial minimum amount for 
widow(er)s whose annuities began prior to the effective date is 
made as of the date of the original annuity award and is not 
adjusted for inflation.

Sec. 102. Retirement Age Restoration

    The Railroad Retirement Act of 1974 provided for full 
annuities at age 60 with 30 years of service for employees and 
full annuities at age 60 for their spouses. As part of 
legislation addressing a funding crisis in the Railroad 
Retirement system, the Railroad Retirement Solvency Act of 1983 
retained the provision for early retirement at age 60 for 
employees with 30 years of railroad service and for their 
spouses, but imposed a reduction in the tier 1 annuity 
component for employee and spouse annuities that begin before 
the employee reaches age 62. The full tier 2 annuity component 
remained payable for both employees and spouses at age 60.
    Section 102 amends the Railroad Retirement Act to again 
provide full tier 1 annuities to employees at age 60 with 30 
years of service and to spouses of employees with 30 years of 
service at age 60. For purposes of calculating the amount of 
the tier 1 component, the employee and spouse are deemed to 
have attained full retirement age as defined by section 216(l) 
of the Social Security Act. Accordingly, section 102 repeals 
current sections 3(a)(3), 4(a)(3), and 4(a)(4) of the Railroad 
Retirement Act, which imposes the reduction in the tier 1 
annuity components of employees and spouses for retirement 
prior to age 62.
    Section 102 applies to employees and spouses of those 
employees whose annuities begin on January 1, 2002, or 
later.\3\
---------------------------------------------------------------------------
    \3\ As part of the national collective bargaining agreement between 
labor and rail management, an early retirement health benefit plan is 
available for retirees at age 61. Management and labor had agreed to 
re-negotiate the agreement to lower the eligibility age to 60 and to 
adjust the maximum lifetime benefit for medical inflation, if the 
railroad retirement reform proposal is adopted by Congress. This would 
conform eligibility for this private health benefit plan with 
eligibility for early retirement.
---------------------------------------------------------------------------

Sec. 103. Vesting requirement

    Under current law, an employee must have accrued at least 
10 years of railroad service to be entitled to an annuity under 
the Railroad Retirement Act. The Act also provides that the 
spouse of an employee may be entitled to an annuity if the 
employee had at least 10 years of railroad service. Finally, an 
employee's survivors may be entitled to benefits under the 
Railroad Retirement Act if the employee had at least 10 years 
of railroad service and had a current connection with the 
railroad industry at his or her death. If an employee does not 
accrue 10 years of railroad service prior to retirement or 
death, the employee's railroad service is transferred to the 
Social Security Administration for use in computing any 
benefits that may be payable under that Act.
    Section 103 of the bill amends the Railroad Retirement Act 
to reduce the vesting requirement for such benefits from the 
current 10 years of railroad service to 5 years of railroad 
service based on service after 1995. Employees with less than 
10 years of employment before 1996 would have to meet either 
the 10-year vesting requirement or acquire 5 years of post-1995 
railroad service for age and service benefits.
    Under current law, an individual entitled to a disability 
annuity may receive a tier 2 benefit if he or she has 10 years 
of service. Section 103(a) provides that an individual entitled 
to a disability annuity who has more than five, but less than 
ten years of service is eligible for a tier 2 benefit at age 
62, subject to the same reductions for early retirement that 
apply to individuals who have attained age 62 with less than 30 
years of service.
    Section 103(b) of the bill provides computation rules for 
individual annuities. Where an employee applies for either a 
Social Security benefit or a tier 1 benefit based on an 
employment record of less than ten years of service, the 
employee will not be entitled to receive higher combined 
benefits under both Social Security and Railroad Retirement 
than the employee would have received under either system.
    Section 103(c) conforms the vesting requirement for 
survivors' benefits to that for employee age and service 
annuities. No conforming amendment for spouse benefits is 
required as entitlement to such benefits is dependent upon the 
employee being entitled to benefits.
    Section 103(d) provides that an employee's tier 1 benefits 
and other benefits that are equivalent to Social Security 
benefits, such as spouse benefits, divorced spouse benefits and 
survivor benefits, would only be payable if the employee had 
sufficient service, based on combined service under the Social 
Security and Railroad Retirement Acts, to qualify the employee 
for benefits under the Social Security Act.
    Section 103(e) of the bill applies rules with respect to 
spouse benefits and divorced spouse benefits similar to those 
applied to employee annuities under section 103(b) to provide 
that a spouse or divorced spouse will not be entitled to 
receive higher combined benefits under both Social Security and 
Railroad Retirement than the annuitant would have received 
under either system.
    Section 103(f) provides that where an annuitant applies 
first for a Railroad Retirement annuity, it will be deemed to 
be an application for any benefit for which the applicant may 
be entitled under the Railroad Retirement Act or section 
202(a), section 202(b), or section 202(c) of the Social 
Security Act.
    Sections 103 (g) (h) and (i) make other conforming 
amendments to the Railroad Retirement Act and the Social 
Security Act to reflect the revised five-year vesting rules.
    The amendments made by section 103 shall take effect on 
January 1, 2002.

Sec. 104. Repeal of the railroad retirement maximum

    Under current law, the total amount of Railroad Retirement 
benefits payable to an employee and spouse is limited to the 
``Railroad Retirement Act maximum,'' which is based on the 
employee's average monthly earnings prior to retirement. The 
maximum is derived from the highest two years of creditable 
Railroad Retirement or Social Security covered earnings in the 
ten-year period ending with the year the employee's annuity 
begins. The maximum cannot be more than the final average 
monthly compensation and cannot be less than $1,200.
    The maximum was enacted to limit benefits to a reasonable 
``cap'' based on the employee's earnings at the time of 
retirement and was intended to primarily apply to employees who 
worked past age 65. However, the maximum has had the unintended 
effect of reducing benefits for long-service retirees with 
moderate earnings, and for retirees with no earnings or low 
earnings in the ten-year period ending with the year the 
employee's annuity begins.
    Section 104 repeals the retirement maximum effective 
January 1, 2002. The annuities of persons whose annuities were 
reduced under the Railroad Retirement maximum are recalculated, 
on a prospective basis. After the effective date, these persons 
receive the amount that would have been payable had the maximum 
not been applied to their benefits.

Sec. 105. Investment of railroad industry assets

    Section 105(a) of the bill creates a new Railroad 
Retirement Investment Trust (``Trust'') for tier 2 benefits 
with authority to invest the assets of the Trust on behalf of 
the Railroad Retirement Board (``RRB'') and to transfer funds 
to a qualified financial institution appointed as a disbursing 
agent for the payment of Railroad Retirement benefits. The 
Trust would be established directly by the statute and would be 
treated as domiciled in the District of Columbia. It shall be 
governed by the laws of the District of Columbia to the extent 
that those laws are not inconsistent with this legislation.
    The Trust would not be treated as an agency or 
instrumentality of the Federal government. The Board of 
Trustees (``Trustees'') of the Trust would be comprised of 
seven members: three members representing the interests of 
labor; three members representing the interests of management; 
and one member representing the interests of the general 
public. The RRB would appoint the Trustees from among persons 
who have experience and expertise in the management of 
financial investments and pension plans and must unanimously 
agree to each Trustee. The RRB would establish rules to provide 
for (i) appropriate compensation for the services rendered to 
the Trust by the Trustee representing the interests of the 
general public and other trustees to the extent that such other 
trustees are neither employed by railroad carriers or railway 
labor organizations, and (ii) reimbursement of expenses 
incurred by all Trustees with respect to Trust business.
    The Trustees have the authority to employ professional 
staff and shall contract with outside advisors to provide 
legal, accounting, investment advisory or other services 
necessary for proper administration of the Trust. To promote 
efficient operation and eliminate unnecessary duplication, the 
Trustees may contract with the RRB (on a full reimbursement 
basis) to provide administrative services to the Trust; 
provided, however, that the Trust must hire independent 
advisors to meet its investment, fiduciary and reporting 
obligations under the Act.
    The Trustees would (i) retain independent advisors to 
assist it in the formulation and adoption of its investment 
guidelines; (ii) retain independent investment managers to 
invest the assets of the Trust in a manner consistent with such 
investment guidelines; and (iii) invest assets in the Trust, 
pursuant to such guidelines. The Trustees also would transfer, 
at the direction of the RRB, funds to the disbursing agent for 
the payment of Railroad Retirement benefits. Administrative 
costs would be funded from the assets of the Trust.
    Five members of the Board of Trustees would constitute a 
quorum to do business. Investment guidelines would be adopted 
by a unanimous vote of the Trustees. All other decisions of the 
Board of Trustees would be decided by majority vote.
    The Trustees would be subject to reporting and fiduciary 
standards parallel to Employee Retirement Income Security Act 
(``ERISA'') requirements with respect to fiduciaries of private 
employee pension benefit plans. These reporting and fiduciary 
standards include general fiduciary obligations such as the 
duty to act solely in the interest of the RRB, and through it, 
in the interest of the participants and beneficiaries of the 
programs funded under the Act; a duty to act with the care, 
skill, prudence and diligence similar to that of a prudent 
person in similar circumstances; a duty to diversify 
investments and a duty to act in accordance with governing 
documents. (These same fiduciary standards apply to the RRB 
with respect to appointment of the Trustees.) With respect to 
the Trustees, the bill contains prohibitions against self-
dealing activities such as dealing with the assets of the Trust 
in the Trustee's own interest; prohibitions against Trustee 
exculpatory provisions in any agreement or instrument (Trustees 
may be covered by liability insurance); bonding requirements; 
and an annual audit and report to Congress on the financial 
status of the Trust. No rules similar to the ERISA funding 
requirements of Part 3 of Title I of ERISA and related 
provisions would apply to the Trustees, the Trust or Trust 
assets.
    The RRB is authorized to seek judicial enforcement of the 
fiduciary standards applicable to the Trustees. Correlatively, 
the Secretary of Labor may judicially enforce the fiduciary 
standards governing RRB appointment of the Trustees.
    The assets of the Trust transferred to it from the Railroad 
Retirement Account and the Social Security Equivalent Benefit 
(``SSEB'') Account would be held in trust for the RRB to pay 
benefits and for the purpose of prudent investment of those 
assets to generate investment income. As such, the Trust shall 
not be subject to the Investment Company Act of 1940 and any 
similar law. The Trust would be treated as falling within the 
exemption in section 3(32) of ERISA for certain plans, 
including those financed under the Railroad Retirement Act. 
Consistent with the express exception in the Labor-Management 
Relations Act (the ``LMRA'') excluding persons and individuals 
subject to the Railway Labor Act from coverage under the LMRA 
(29 U.S.C. Sec. 152(2)-(3)), the Trust would not be subject to 
the LMRA.
    Section 105(c) of the bill provides that the provisions of 
section 105 shall take effect on the first day of the first 
full month after the date of enactment.

Sec. 106. Elimination of supplemental annuity account

    Current law (section 2(b) of the Railroad Retirement Act) 
provides for a supplemental annuity for certain employees who 
performed railroad service in at least one month prior to 
October 1, 1981. The supplemental annuity is funded entirely 
through a tax on employers, currently set at 26.0 cents per 
hour. Approximately one-third of the taxes collected each year 
is not needed to fund supplemental annuities and is transferred 
to the Railroad Retirement Account (``RRA''), where it is used 
to pay tier 2 benefits.
    Section 106 repeals section 15(c) of the Railroad 
Retirement Act, which establishes a separate Railroad 
Retirement Supplemental Account. The supplemental annuity tax 
is repealed in section 202. Both provisions would be effective 
January 1, 2002. The supplemental annuity benefit provisions of 
the Railroad Retirement Act are not affected and supplemental 
annuities will be funded from the new Trust.

Sec. 107. Transfer authority revisions

    Section 107(a) of the bill provides that, once the Trust 
has been established pursuant to Section 105, the RRB would 
determine from time to time what portion of the Railroad 
Retirement Account is not needed to pay current administrative 
expenses. The Board would then direct the Secretary of Treasury 
to transfer that portion to the Trust.
    Section 107(b) provides that the Investment Trust shall 
from time to time transfer to a qualified non-governmental 
financial institution (``Disbursing Agent'') amounts necessary 
to pay tier 2 and supplemental annuity benefits, and 
administrative expenses related to those benefits.
    Section 107(c) provides that the RRB would from time to 
time determine the amount of the balance in the SSEB Account 
that is in excess of the amount needed to pay current benefits, 
and direct the Secretary of the Treasury to transfer such 
excess amount to the Trust. Amounts transferred to the Trust 
from the SSEB Account shall be used by the Trust only to pay 
benefits under the Act or to purchase U.S. Government 
securities. This subsection also provides that the Secretary of 
Treasury shall be authorized to transfer from the SSEB Account 
to the Disbursing Agent amounts necessary to pay SSEB benefits.
    Section 107(d) provides that the Secretary of Treasury 
shall be authorized to transfer from the Dual Benefits Payments 
Account to the Disbursing Agent amounts necessary to make Dual 
Benefit payments.
    Section 107(e) of the bill requires the RRB, in 
consultation with the Trustees and the Secretary of the 
Treasury, to contract with a Disbursing Agent to serve as payer 
with respect to all benefits payable under the Railroad 
Retirement Act. The RRB would certify the amounts due to each 
individual to the Secretary of the Treasury who, in turn, would 
direct the Disbursing Agent to make payment of benefits. All 
Railroad Retirement benefits due to an individual, from 
whatever source, would be consolidated by the Disbursing Agent 
into a single monthly check or transfer to the beneficiary. The 
Board would certify to the Trust the amount of funds to be 
transferred to the Disbursing Agent to fund payment of 
benefits. The RRB would continue to pay all benefits as under 
the law in effect prior to enactment until the Disbursing Agent 
is selected.
    Section 107(f) of the bill provides that benefits, as 
determined by the RRB, would be paid by the Disbursing Agent, 
from money transferred to it by the Trust.
    Section 107(g) of the bill gives the RRB, in consultation 
with the Secretary of the Treasury, the discretion to either 
hold or convert to cash obligations held as of the date of 
enactment.

Sec. 108. Annual Ratio Projections and Certifications by the Railroad 
        Retirement Board

    Section 108 of the bill would make the RRB responsible for 
making annual projections of the account benefits ratio and the 
average account benefits ratio for each of the next succeeding 
five years on or before May 1 of each year beginning in 2003. 
The average account benefits ratio is the average of the 
account benefits ratios for the 10 most recent fiscal years 
ending before such calendar year. The bill defines the term 
``account benefits ratio'' as the amount determined by dividing 
the fair market value of the assets in the Railroad Retirement 
Account and the Trust (and for years before 2001, the Social 
Security Equivalent Benefits Account) as of the close of such 
fiscal year by the total benefits and administrative expenses 
paid from the Railroad Retirement Account and the Trust during 
such fiscal year. On or before November 1, 2003, the Railroad 
Retirement Board will compute the account benefits ratio and 
certify it to the Secretary of Treasury.

                                TITLE II

Sec. 201. Amendment to the Internal Revenue Code of 1986

    This section provides that all references in Title II that 
are expressed in terms of an amendment to, or repeal of, a 
section or other provision, are to a section or other provision 
of the Internal Revenue Code of 1986.

Sec. 202. Tax Exemption for Railroad Retirement Investment Trust

    Section 202 provides for tax-exemption of the Trust.

Sec. 203. Repeal of Supplemental Annuity Tax

    The supplemental annuity is financed by an excise tax 
imposed on employee representatives and employers under 
sections 3211(b), 3221(c), and 3221(d) of the Internal Revenue 
Code. The amendment made by section 203 repeals this excise 
tax, effective for calendar years after 2001. (See also, 
section 106.)

Sec. 204. Employer, Employee Representative, and Employee Tier 2 Tax 
        Rate Adjustments

    Section 204(a) would amend section 3221(b) of the Internal 
Revenue Code to reduce the tier 2 tax rate on employers for 
calendar years 2002 and 2003 from the current rate of 16.1% to 
15.6% and 14.2%, respectively. For years thereafter, the tier 2 
tax rate would be determined under a new section 3241 that 
would be added by section 204(d) of the bill.
    Section 204(b) would make similar changes in the tier 2 tax 
rates imposed on employee representatives under section 3211 of 
the Internal Revenue Code. Employee representatives would pay a 
tier 2 tax of 14.75% in calendar year 2002 and 14.20% in 
calendar year 2003. As with the tier 2 tax rate for employers, 
the tier 2 tax rate for years after 2003 would be determined 
under the new section 3241.
    There would be no change in the tier 2 tax rate for 
employees in the years 2002 and 2003. However, for calendar 
years after 2003, the employee tier 2 tax rate would be 
determined under the new section 3241.
    Section 204(d) provides for the determination of the tier 2 
tax rates applicable to employers, employee representatives, 
and employees for calendar years after 2003. The rates would be 
based on the account benefits ratio, which is defined as the 
fair market value of assets in the RRA and of the Trust as of 
the close of the fiscal year divided by the total benefits and 
administrative expenses paid from the RRA and the Trust during 
such fiscal year. For the years before 2002, the assets of the 
SSEB Account are also included in the calculation of the 
account benefits ratio. Depending on the average account 
benefits ratio, tier 2 tax rates for employers and employee 
representatives would fall within a range between 8.2% and 
22.1%, while the tax rate for employees would be between 0% and 
4.9%.\4\
---------------------------------------------------------------------------
    \4\ The Labor-Management Agreement provides that, after the 
enactment of this legislation, employee representatives may elect to 
convert any amount by which the employee rate is projected to be less 
than 4.9% into an expanded retirement benefit. The cost of this new 
benefit shall not exceed, on a 75-year percentage of payroll basis, the 
benefit of this projected difference. If any additional benefit is 
enacted, the future enabling legislation shall provide that the 
employee tax rate that otherwise would be effective under the statutory 
schedule will be increased by the cost (on a 75-year percentage of 
payroll basis) of such benefit, or at the employee representative's 
election, that the benefits will terminate if the average account 
benefits ratio goes below 6. Management has agreed to support future 
legislation providing for any such conversion consistent with this 
policy.
---------------------------------------------------------------------------
    The Secretary of Treasury would use the account benefits 
ratio to calculate the average account benefits ratio (the 
average of the account benefits ratios for the ten most recent 
fiscal years) and to determine the tier 2 tax rates in 
accordance with the schedule set forth in 3241(b). In order to 
calculate the average account benefits ratio in the first year, 
on or before November 1, 2003, the RRB would compute the 
account benefits ratios for each of the ten consecutive fiscal 
years, ending with the most recent fiscal year and certify each 
of the account benefits ratios to the Secretary. No later than 
December 1 of each year, the Secretary would publish a notice 
in the Federal Register of the rates of tax determined under 
section 3241 which are applicable for the following year.

                               Conclusion

    H.R. 1140 is a landmark piece of legislation that provides 
benefits for all the participants in the railroad retirement 
system. It modernizes and strengthens the financing of the 
program while also providing for improved retirement benefits 
for railroad workers and their families.

                             Rollcall Votes

    Clause 3(b) of rule XIII of the House of Representatives 
requires each committee report to include the total number of 
votes cast for and against on each rollcall vote on a motion to 
report and on any amendment offered to the measure or matter, 
and the names of those members voting for and against. There 
were no rollcall votes on this legislation.

                      Committee Oversight Findings

    With respect to the requirements of clause 3(c)(1) of rule 
XIII of the Rules of the House of Representatives, oversight 
findings and recommendations have been made by the Committee as 
reflected in this report.

                          Cost of Legislation

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is satisfied where a cost estimate and 
comparison prepared by the Director of the Congressional Budget 
Office (CBO) under section 402 of the Congressional Budget Act 
of 1974 has been timely submitted prior to the filing of the 
report and is included in the report. The cost estimate 
prepared by the Director of the CBO is included with this 
report.

                    Compliance With House Rule XIII

    1. With respect to the requirement of clause 3(c)(2) of 
rule XIII of the Rules of the House of Representatives, and 
308(a) of the Congressional Budget Act of 1974, the Committee 
references the report of the Congressional Budget Office has 
not been received. When available, it will be printed in the 
Congressional Record.
    2. With respect to clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance and objectives for which any 
measure authorizes funding is required.
    3. With respect to the requirement of clause 3(c)(3) of 
rule XIII of the Rules of the House of Representatives and 
section 402 of the Congressional Budget Act of 1974, a cost 
estimate from the Director of Congressional Budget Office (CBO) 
is included with this report.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

 H.R. 1140--Railroad Retirement and Survivors' Improvement Act of 2001

    Summary: H.R. 1140 would make several changes to the 
Railroad Retirement program. The bill would expand benefits for 
certain participants in the program and reduce the number of 
years of covered railroad service needed before a worker (and 
qualified spouse) can be vested in the system. The legislation 
would also eliminate the Supplemental Annuity tax and lower the 
payroll tax rate on railroad employers. Finally, the bill would 
create a new Railroad Retirement Investment Trust and establish 
a board to manage this fund. That board would be authorized to 
invest the reserves of the Railroad Retirement System in 
private securities.
    Assuming that investments in private securities are treated 
as budget outlays, as specified in OMB Circular A-11, CBO 
estimates that H.R. 1140 would increase direct spending by 
$13.8 billion during the 2002-2006 period and by $10.6 billion 
over the 2002-2011 period. It would reduce revenues by $1.7 
billion from 2002 through 2006 and by $4.0 billion in the 10-
year period. Because the bill would affect direct spending and 
receipts, pay-as-you-go procedures would apply. The net effect 
of H.R. 1140 would be to decrease the budget surplus by $15.5 
billion from 2002 through 2006 and by $14.6 billion over the 
2002-2011 period. Because there is little precedent for the 
purchase of private securities by the federal government, 
alternative budgetary treatments are possible that could 
substantially alter the budgetary impact.
    The legislation contains no intergovernmental or private-
sector mandates as defined in the Unfunded Mandates Reform Act 
(UMRA) and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 1140 is summarized in Table 1. The 
costs of this legislation fall within budget function 600 
(income security).

                                                   TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 1140
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               By fiscal year, in millions of dollars--
                                             -----------------------------------------------------------------------------------------------------------
                                               2001     2002       2003     2004     2005     2006     2007      2008       2009       2010       2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING

Benefit Changes:
    Expansion of Widow/er Benefits..........      0          83       92       94       95       97      100        102        104        106        108
    Reduction in Retirement Age.............      0          37      121      192      228      259      305        359        397        420        443
    Reduction in Vesting Requirements.......      0       (\1\)    (\1\)    (\1\)    (\1\)    (\1\)        1          1          1          1          2
    Repeal of Ceiling on Railroad Retirement      0          11       14       15       16       18       19         20         22         24         25
     Benefits...............................
                                             -----------------------------------------------------------------------------------------------------------
      Subtotal..............................      0         131      227      301      339      374      425        481        523        550        578
Investment in non-Treasury Securities \2\...      0      15,320     -460     -660     -830     -920     -990     -1,060     -1,140     -1,250     -1,340
                                             -----------------------------------------------------------------------------------------------------------
      Total.................................      0      15,451     -233     -359     -491     -546     -565       -579       -617       -700       -762
                                             -----------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Repeal of Supplementary Annuity Tax \3\.....      0         -59      -79      -81      -79      -77      -76        -75        -75        -74        -74
Adjustment in Tier II Tax Rate \3\..........      0         -59     -198     -329     -362     -366     -374       -379       -383       -384       -386
                                             -----------------------------------------------------------------------------------------------------------
      Total.................................      0        -118     -277     -410     -441     -443     -450       -454       -458       -458       -460

                                                           TOTAL CHANGES IN THE BUDGET SURPLUS

Increase or Decrease (-) in the Surplus.....      0     -15,569      -44      -51       50      103      115        125        159        242        302
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
\2\ The budgetary treatment of this provision follows the instructions in OMB Circular A-11. CBO assumes that the investment board will maintain 20
  percent of the portfolio in U.S. Treasury securities, 20 percent in corporate securities, and 60 percent in private equities.
\3\ Assumes that 20 percent of employer-paid payroll tax reductions are offset by additional income and employee-paid tax collections.

Note.--Components may not sum to totals because of rounding.

    Basis of estimate: The Railroad Retirement system has two 
main components. Tier I of the system is financed by taxes on 
employers and employees equal to the Social Security payroll 
tax and provides qualified railroad retirees (and their 
qualified spouses, dependents, widows, or widowers) with 
benefits that are roughly equal to Social Security. Covered 
railroad workers and their employers pay the Tier I tax instead 
of the Social Security payroll tax, and most railroad retirees 
collect Tier I benefits instead of Social Security. Tier II of 
the system operates much like traditional multi-employer 
pension systems, with employers and employees contributing a 
certain percentage of pay toward the system to finance defined 
benefits to eligible railroad retirees (and qualified spouses, 
dependents, widows, or widowers) upon retirement. But while 
most multi-employer plans are run by a group of cooperating 
employers in the same industry, the federal government collects 
the Tier II payroll contribution and pays out the benefits.
    H.R. 1140 would make fundamental changes to the Railroad 
Retirement system by expanding certain retirement benefits, 
reducing payroll taxes, and authorizing a new government 
organization to invest funds credited to the Railroad 
Retirement Account in the private securities market. In 
addition, the bill would eliminate the separate account for 
supplemental benefits and pay those benefits directly from the 
Railroad Retirement Investment Trust.
    CBO assumes an enactment date of September 30, 2001.

Direct spending

    H.R. 1140 would make several changes in Railroad Retirement 
benefits, including
           Expanding benefits for qualified widows and 
        widowers;
           Reducing the normal retirement age for Tier 
        I benefits to 60;
           Reducing the system's vesting requirements; 
        and
           Repealing the cap on the Railroad Retirement 
        benefits.
    The bill also would establish a new entity called the 
Railroad Retirement Investment Trust, which would be 
responsible for investing the reserves of the Railroad 
Retirement System in private securities, as well as in U.S. 
Treasury Securities. Without changes in law, CBO estimates that 
outlays for the Railroad Retirement benefits will be 8.5 
billion in fiscal year 2002 and will grow to $10.5 billion by 
2011.
    Benefit changes. The four changes in Railroad Retirement 
benefits (described below) would increase spending by $0.1 
billion in 2002 and by $3.9 billion over the 2002-2011 period. 
A fifth change, which would have no budgetary effects, would 
shift the payment of the Supplemental Annuity from its separate 
account to the Railroad Retirement Investment Trust.
    Expansion of Widows' and Widowers' Benefits. Section 101 of 
the legislation would increase Railroad Retirement annuities 
payable to certain widows and widowers of railroad employees. 
Under current law, the Tier II component of a widow(er)'s 
Railroad Retirement annuity is generally equal to 50 percent of 
the Tier II benefit that was payable to the retired employee at 
the time of his or her death. Section 101 would provide a 
guaranteed minimum benefit for widow(er)s based on 100 percent 
of the employee's Tier II annuity. This provision would 
generally provide widow(er)s with the same Tier II benefits 
that were previously being paid to the now deceased railroad 
retiree.
    Section 101 would apply to benefits paid in months 
beginning 30 days after the bill is enacted. For widow(er)s 
whose benefits begin before that date, the guaranteed minimum 
would be based on the amount of the original annuity without 
adjustment for inflation.
    According to the Railroad Retirement Board, this would 
initially affect approximately 50,000 widow(er)s currently 
collecting benefits. CBO estimates this provision would 
increase direct spending by $83 million in 2002 and by $979 
million during the 2002-2011 period.
    Reduction in Retirement Age. Section 102 of the legislation 
would provide for full retirement benefits at age 60 for 
railroad workers (and qualified spouses) who have at least 30 
years of covered service. Under current law, retirees with 30 
years of service may begin collecting full Tier II benefits at 
age 60, but Tier I benefits are reduced if they file before the 
age of 62. This legislation would eliminate that reduction in 
Tier I benefits, which was enacted in the Railroad Solvency Act 
of 1983. Based on data provided by the Railroad Retirement 
Board, CBO estimates this provision would initially affect 
about 2,500 workers and would increase direct spending by $37 
million in 2002 and by $2.8 billion over the 2002-2011 period.
    Reduction in Vesting Requirement. Section 103 would reduce 
the number of years of covered service needed before workers 
(and qualified spouses) become vested in the Railroad 
Retirement System from 10 years to five years. The reduced 
vesting requirement would only apply to qualified service 
performed after 1995. Employees who had fewer than 10 years of 
qualified railroad employment before 1996 would either have to 
meet the current 10-year vesting requirement or have five years 
of covered service after 1995 in order to be vested. Section 
103 would correspondingly reduce the vesting requirements for 
disability and survivor benefits.
    Based on information provided by the Railroad Retirement 
Board, CBO estimates this proposal would have a negligible 
effect on direct spending through 2006, but would increase 
direct spending by $6 million during the 2007-2011 period.
    Repeal of the Ceiling on Railroad Retirement Benefits. 
Current law caps the total monthly benefits payable to a 
retiree and spouse under the Railroad Retirement system. This 
cap is calculated based on the employee's average monthly 
salary during the two years prior to retirement, or the 
worker's monthly Social Security earnings in the 10-year period 
prior to retirement. The maximum cannot be more than the final 
average monthly compensation and cannot be less than $1,200. 
Section 104 would repeal this limit, effective January 1, 2002. 
The Railroad Retirement Board indicates that about 2,000 
employee annuitants and 12,000 spouse annuitants currently 
collect reduced benefits because of the cap. CBO estimates that 
eliminating the Railroad Retirement maximum would increase 
direct spending by $11 million in 2002 and by $182 million from 
2002 through 2011.
    Investment in Non-Treasury Securities. Section 105 of H.R. 
1140 would establish a new entity, the Railroad Retirement 
Investment Trust, which would be allowed to invest in non-
Treasury securities, such as publicly traded stocks in private 
companies. By law, the fund's assets, which CBO estimates will 
total about $19.2 billion in December 2001, now consist solely 
of U.S. government securities. Because those securities are the 
safest possible investment, they generally earn a lower rate of 
return than riskier instruments like corporate stocks and 
bonds. Similar restrictions apply to the investment policies of 
each major federal trust fund--Social Security, Medicare, Civil 
Service Retirement, Military Retirement, the Highway Trust 
Fund, and others. H.R. 1140 would make Railroad Retirement an 
exception to that rule.
    Estimate Under Current Budgetary Treatment. The current 
budgetary treatment of federal investments in non-Treasury 
financial instruments is specified in the Office of Management 
and Budget (OMB) Circular A-11, which states that the purchases 
of such securities should be displayed as outlays and the sales 
of such securities and returns such as dividends and interest 
payments should be treated as offsetting receipts or 
collections. Under this budgetary treatment, this bill's 
authorization for such investment practices would increase 
outlays by $15.3 billion in 2002. Beginning in 2003, however, 
most proceeds from stock dividends and sales would be used to 
pay benefits because tax revenues would not be sufficient to 
fund all benefits payments. Thus, the new investment practices 
result in decreased outlays beginning in 2003, and net spending 
of $6.7 billion over the 10-year period.
    As required by the bill, funds currently held in the 
Railroad Retirement Account and the Social Security Equivalent 
Benefit Account that are not currently needed to pay benefits 
would be transferred to the newly created Railroad Retirement 
Investment Trust. CBO assumes that about $19.2 billion in those 
accounts would be transferred on December 31, 2001, and would 
promptly be invested in various financial instruments. Based on 
the practices of other multi-employer pension plans, CBO 
further assumes the managers of the fund would keep 20 percent 
of the investments in U.S. Treasury securities, 20 percent in 
high-grade corporate bonds, and the remaining 60 percent in 
equities. Because purchases of Treasury securities are not 
considered outlays, only 80 percent of the initial investments 
of the fund would be shown as federal outlays. The estimates 
assume that Treasury securities yield about a 6 percent return, 
high-grade corporate bonds a 7 percent return, and equities a 9 
percent return. The assumption of returns on Treasury 
securities is based on CBO's January 2001 economic projections, 
while the assumed returns on corporate bonds and equities are 
consistent with the 1999 report of the Technical Panel on 
Assumptions and Methods to the Social Security Advisory Board.
    Current Budgetary Treatment vs. Possible Alternatives. For 
most federal programs, accounting for outlays is 
straightforward. The federal government buys goods and 
services--such as defense and medical care--and makes transfer 
payments like Social Security and payments for Food Stamps by 
issuing a check or its equivalent. Those payments are counted 
as outlays when they are issued. The A-11 treats the purchases 
of assets--financial or physical--in the same way. The purchase 
price simply appears as a federal outlay. Specifically, the A-
11 states:

        [w]e treat an investment in non-U.S. securities (equity 
        or debt securities) as a purchase of an asset. You must 
        record an obligation and an outlay for the purchase in 
        an amount equal to the purchase price. * * * You record 
        interest received on such investments as a collection 
        when you receive it and in the amount that you receive. 
        * * * You record the proceeds from the sale or 
        redemption of a non-U.S. security as a collection when 
        received and in the amount received.

    In contrast, the A-11 directs that U.S. securities be 
treated as equivalent to cash, and tells agencies to count 
transactions involving such securities as a change in the mix 
of asset holdings rather than as a purchase or sale of assets. 
Thus, purchases of non-Treasury securities are deemed to be 
outlays under the A-11 guidelines, but purchases of Treasury 
securities are not. In practice, this difference has been of 
little consequence because the government has only rarely 
acquired non-Treasury securities.
    Some budget experts think that this long-standing practice 
is ill-suited to purchases of financial assets that the 
government acquires as a way of preserving (or enhancing) the 
value of cash balances. (For example, the current treatment 
would dictate that if current or future budget surpluses were 
entirely invested in non-Treasury securities, the budget would 
record government expenditures equal to receipts, which might 
not be a useful indicator of the government's financial 
condition.) It can also be argued that purchases of financial 
assets in order to preserve or enhance the value of cash 
balances are very different in nature, and should be treated 
differently in the budget, than purchases of goods and 
services, entitlement benefits, grants, employees' salaries, 
and other programmatic or operational activities of the 
government. Consequently, some analysts have argued that these 
purchases should not be treated as outlays, but rather as a 
means of financing the activities of the federal government. In 
this estimate, CBO has followed the instructions of the A-11, 
but we may consider a different budgetary treatment in the 
future.

Revenues

    H.R. 1140 would make several changes to the payroll tax 
specified in the Railroad Retirement Act, and would result in 
estimated net revenue losses of $0.1 billion in 2002 and $4.0 
billion over the 10-year period. Because reductions in 
employer-paid employment taxes are assumed to be passed through 
to workers as higher compensation, mostly in the form of wages, 
increased income and employee-paid payroll tax collections are 
assumed to offset 20 percent of the lost payroll tax revenues.
    Supplemental Annuity Tax. Section 203 of the bill would 
repeal the Supplemental Annuity tax, which is currently levied 
on employers to pay for a third layer of benefits on top of 
Tier I and Tier II. Instead of being paid from a separate 
account, supplemental benefits would be paid directly from the 
Railroad Retirement Account. Based on information provided by 
the Railroad Retirement Board, CBO estimates that this 
provision would reduce net revenue by $375 million over the 
2002-2006 period and by $749 million over the 2002-2011 period.
    Tier II Payroll Tax Rates. The bill would also lower the 
Tier II tax rate on employers from its current level of 16.1 
percent to 14.75 percent in calendar year 2002 and 14.2 percent 
in calendar year 2003. Thereafter, H.R. 1140 would link future 
Tier II tax rates to the financial condition of the Railroad 
Retirement Investment Trust (see Table 2). Specifically, the 
bill would require the Railroad Retirement Board to calculate 
the ratio of assets held in the trust fund (using the average 
balance in the fund over the previous 10 years) to the total 
Railroad Retirement benefits paid out in a given year (the 
account benefit or trust fund ratio). In 2004, CBO expects the 
account benefit ratio would be about 5.6, which would cause 
payroll tax rates to be set at 13.1 for employers and 4.9 for 
employees (which is the current rate for employees). CBO 
estimates that the Tier II tax rates will remain at that level 
through at least 2011 and that the changes in the tax rate 
would reduce revenue by $1.3 billion over the 2002-2006 period 
and $3.2 billion from 2002 through 2011. (Under current law, 
CBO estimates that Tier II tax revenues will total about $31 
billion over the 2002-2011 period.)
    If, however, the account benefit ratio rises or falls below 
expectations, a change in payroll tax rates could be triggered 
by the bill. For instance, if the board determined that this 
ratio had gone above 6.0, then the Tier II payroll tax rate for 
both employers and employees would be reduced. Conversely, if 
the board determined that the ratio had fallen below 4.0, then 
the payroll tax for railroad employers would increase.
    Under reasonable assumptions about railroad employment and 
investment income to the trust fund, CBO estimates that neither 
outcome would occur during the next 10 years. For example, if 
the new trust fund held only Treasury securities, the account 
benefit ratio would fall from 6.0 today to 5.1 by 2011. If the 
trust fund were invested in a wider variety of securities, and 
the rates of return matched CBO's assumptions, the ratio would 
be roughly 5.8 in 2011.
    Although that conclusion represents CBO's best judgment, 
the unexpected could happen. For example, rapid growth in the 
railroad industry's payroll or spectacular returns in the stock 
market could trigger tax cuts by 2011. On the other hand, 
employment that is significantly lower than expected or a drop 
in stock values could lead to automatic tax increases.

               TABLE 2.--DETERMINATION OF TIER II TAX RATE
------------------------------------------------------------------------
  If the account benefit ratio is:      The Tier II tax rates would be:
------------------------------------------------------------------------
     At least        But less than      For employers     For employees
------------------------------------------------------------------------
             0                2.5              22.1               4.9
           2.5                3.0              18.1               4.9
           3.0                3.5              15.1               4.9
           3.5                4.0              14.1               4.9
           4.0                6.1              13.1               4.9
           6.1                6.5              12.6               4.4
           6.5                7.0              12.1               3.9
           7.0                8.5              11.6               3.4
           7.5                8.0              11.1               2.9
           8.0                8.5              10.1               1.9
           8.5                9.0               9.1               0.9
           9.0                 NA               8.2                 0
------------------------------------------------------------------------
Note.--The account benefit ratio is calculated by dividing average trust
  fund assets over the previous 10 years by the total Railroad
  Retirement benefits paid in a given year.

NA = Not applicable.

    Pay-as-you-go-considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending and receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in Table 3. For the 
purposes of enforcing pay-as-you-go procedures, only the 
effects in the current year, the budget year, and the 
succeeding four years are counted.

                                        TABLE 3.--ESTIMATED EFFECTS OF H.R. 1140 ON DIRECT SPENDING AND RECEIPTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     By fiscal year, in millions of dollars--
                                                        ------------------------------------------------------------------------------------------------
                                                          2001    2002     2003     2004     2005     2006     2007     2008     2009     2010     2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays.....................................      0   15,451     -233     -359     -491     -546     -565     -579     -617     -700     -762
Changes in receipts....................................      0     -118     -277     -410     -441     -443     -450     -454     -458     -458     -460
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 1140 
contains no intergovernmental or private-sector mandates as 
defined by UMRA and would impose no costs on state, local, or 
tribal governments.
    Comparison with other estimates: The Railroad Retirement 
Board has prepared an estimate of the individual benefit 
increases and projected trust fund holdings under H.R. 1140. 
The board's estimate contains trust fund projections using 
three different assumptions about employment levels in the 
railroad industry.
    Using the middle employment assumption, which CBO believes 
is the most realistic, the Railroad Retirement Board estimates 
that the cost of benefits under H.R. 1140 would increase by 
$1.4 billion from 2002 through 2006 and by $3.9 billion during 
the 2002-2011 period, slightly more than CBO estimates. In 
addition, the board estimates that revenues from Tier II 
payroll taxes would decrease by $1.5 billion from 2002 through 
2006 and $3.6 billion over the 2002-2011 period. The board's 
estimates do not include any impact the lower employer-paid 
payroll taxes might have on income and employee-paid payroll 
tax receipts. On a comparable basis, excluding impacts on 
income and employee-paid payroll tax receipts, CBO estimates 
Tier II revenue losses of $1.6 billion over five years and $4.0 
billion over 10 years. Both the board and CBO estimate that 
balances in the new trust fund would rise steadily over time, 
but would not be high enough to trigger a reduction in the 
payroll tax during the next 10 years.
    Estimate prepared by: Federal Costs: Geoffrey Gerhardt and 
Ed Harris. Impact on State, Local, and Tribal Governments: Leo 
Lex. Impact on the Private Sector: Ralph Smith.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                   Constitutional Authority Statement

    Pursuant to clause (3)(d)(1) of rule XIII of the Rules of 
the House of Representatives, committee reports on a bill or 
joint resolution of a public character shall include a 
statement citing the specific powers granted to the Congress in 
the Constitution to enact the measure. The Committee on 
Transportation and Infrastructure finds that Congress has the 
authority to enact this measure pursuant to its powers granted 
under article I, section 8 of the Constitution.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act. (Public Law 104-4.)

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                Applicability to the Legislative Branch

    Because the legislation applies only to railroad employers 
and employees, the Committee finds that the legislation does 
not relate to the terms and conditions of employment or access 
to public services or accommodations within the meaning of 
section 102(b)(3) of the Congressional Accountability Act. 
(Public Law 104-1.)

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                    RAILROAD RETIREMENT ACT OF 1974

           *       *       *       *       *       *       *


                    annuity eligibility requirements

  Sec. 2. (a)(1) The following-described individuals, if they 
shall have completed ten years of service (or, for purposes of 
paragraphs (i), (iii), and (v), five years of service, all of 
which accrues after December 31, 1995) and shall have filed 
application for annuities, shall, subject to the conditions set 
forth in subsections (e), (f), and (h), be entitled to 
annuities in the amounts provided under section 3 of this Act--
          (i)  * * *

           *       *       *       *       *       *       *

  (4) An individual who is entitled to an annuity under 
paragraph (v) of subdivision (1), but who does not have at 
least ten years of service, shall, prior to the month in which 
the individual attains age 62, be entitled only to an annuity 
amount computed under section 3(a) of this Act (without regard 
to section 3(a)(2) of this Act) or section 3(f)(3) of this Act. 
Upon attainment of age 62, such an individual may also be 
entitled to an annuity amount computed under section 3(b), but 
such annuity amount shall be reduced for early retirement in 
the same manner as if the individual were entitled to an 
annuity under section 2(a)(1)(iii).

           *       *       *       *       *       *       *

  (d)(1) The following described survivors of a deceased 
employee who will have completed ten years of service (or five 
years of service, all of which accrues after December 31, 1995) 
and will have had a current connection with the railroad 
industry at the time of his death shall, subject to the 
conditions set forth in subsections (g) and (h), be entitled to 
annuities, if they have filed application therefor, in the 
amounts provided under section 4 of this Act--
          (i)  * * *

           *       *       *       *       *       *       *

  (i) An individual entitled to an annuity under this section 
who has completed five years of service, all of which accrues 
after 1995, but who has not completed ten years of service, and 
the spouse, divorced spouse, and survivors of such individual, 
shall not be entitled to an annuity amount provided under 
section 3(a), section 4(a), or section 4(f) of this Act unless 
the individual, or the individual's spouse, divorced spouse, or 
survivors, would be entitled to a benefit under title II of the 
Social Security Act on the basis of the individual's employment 
record under both this Act and title II of the Social Security 
Act.

                   computation of employee annuities

    Sec. 3. (a)(1)  * * *
  (2) For purposes of this subsection, individuals entitled to 
an annuity under section 2(a)(1)(ii) of this Act shall, except 
for the purposes of recomputations in accordance with section 
215(f) of the Social Security Act, be deemed to have attained 
retirement age (as defined by section 216(l) of the Social 
Security Act). For purposes of this subsection, individuals 
entitled to an annuity under paragraph (iv) or (v) of such 
section 2(a)(1) shall be deemed to be entitled to a disability 
insurance benefit under section 223 of the Social Security Act.
  [(3) In lieu of an annuity amount provided under subdivision 
(1), the annuity of an individual entitled to an annuity under 
paragraph (ii) of section 2(a)(1) of this Act which begins to 
accrue before the individual attains age 62 shall be in an 
amount equal to--
          [(i) for each month prior to the first month 
        throughout which the individual is age 62, the amount 
        (after any reduction on account of age but before any 
        deductions on account of work) of the old-age insurance 
        benefit to which such individual would have been 
        entitled under the Social Security Act as of the date 
        on which such individual's annuity begins to accrue if 
        such individual had attained age 62 on the first day of 
        the month in which his or her annuity begins to accrue 
        and if all of such individual's service as an employee 
        after December 31, 1936, had been included in the term 
        ``employment'' as defined in that Act, using for 
        purposes of this computation the number of benefit 
        computation years applicable to a person born in the 
        year in which such individual was born; and
          [(ii) for months beginning with the first month 
        throughout which the individual is age 62, the amount 
        (after any reduction on account of age but before any 
        deductions on account of work) of the old-age insurance 
        benefit to which such individual would have been 
        entitled under the Social Security Act if all of such 
        individual's service as an employee after December 31, 
        1936, had been included in the term ``employment'' as 
        defined in that Act.]
  (3) If an individual entitled to an annuity under section 
2(a)(1)(i) or (iii) of this Act on the basis of less than ten 
years of service is entitled to a benefit under section 202(a), 
section 202(b), or section 202(c) of the Social Security Act 
which began to accrue before the annuity under section 
2(a)(1)(i) or (iii) of this Act, the annuity amount provided 
such individual under this subsection, shall be computed as 
though the annuity under this Act began to accrue on the later 
of (A) the date on which the benefit under section 202(a), 
section 202(b), or section 202(c) of the Social Security Act 
began, or (B) the date on which the individual first met the 
conditions for entitlement to an age reduced annuity under this 
Act other than the conditions set forth in sections 2(e)(1) and 
2(e)(2) of this Act and the requirement that an application be 
filed.

           *       *       *       *       *       *       *

  (f)[(1) If the total amount of an individual's annuity and 
supplemental annuity computed under the preceding subsections 
of this section would, before any reductions on account of age, 
before any reduction due to such individual's entitlement to a 
monthly insurance benefit under the Social Security Act, and 
disregarding any increases in such total amount which become 
effective after the date on which such individual's annuity 
under section 2(a)(1) of this Act begins to accrue, exceed an 
amount equal to the sum of (A) 100 percentum of his ``final 
average monthly compensation'' up to an amount equal to 50 
percentum of one-twelfth of the maximum annual taxable 
``wages'' (as defined in section 3121 of the Internal Revenue 
Code of 1954) for the calendar year in which such individual's 
annuity under section 2(a)(1) of this Act begins to accrue, 
plus (B) 80 percentum of so much of his ``final average monthly 
compensation'' as exceeds 50 percentum of one-twelfth of the 
maximum annual taxable ``wages'' (as defined in section 3121 of 
the Internal Revenue Code of 1954) for the calendar year in 
which such individual's annuity under section 2(a)(1) of this 
Act begins to accrue, the supplemental annuity of such 
individual first, and then, if necessary, the annuity amount of 
such individual as computed under subsection (b) of this 
section, shall be reduced until such total amount of such 
individual's annuity and supplemental annuity equals such sum 
or until such supplemental annuity and such annuity amount 
computed under subsection (b) of this section are reduced to 
zero, whichever occurs first: Provided, however, That the 
provisions of this subdivision shall not operate to reduce the 
total amount of an individual's annuity and supplemental 
annuity computed under the preceding subsections of this 
section below $1,200. For purposes of this subdivision, the 
``final average monthly compensation'' of an individual shall 
except as provided in the following sentence be determined by 
dividing the total compensation received by such individual in 
the two calendar years, consecutive or otherwise, in which he 
was credited with the highest total compensation during the 
ten-year period ending with December 31 of the year in which 
such individual's annuity under section 2(a)(1) of this Act 
begins to accrue by 24. If the individual's ``average monthly 
compensation'' is determined under subdivision (2) of 
subsection (b) of this section, the ``final average monthly 
compensation'' for such individual shall be the average of the 
compensation for the 24 months in which the compensation 
determined for the purpose of subdivision (2) of subsection (b) 
of this section is the highest. For purposes of this 
subdivision, the term ``compensation'' shall include 
``compensation'' as defined in section 1(h) of this Act, 
``wages'' as defined in section 209 of the Social Security Act, 
``self-employment income'' as defined in section 211(b) of the 
Social Security Act, and wages deemed to have been paid under 
section 217 or 229 of the Social Security Act on account of 
military service: Provided, however, That in no case shall the 
compensation with respect to any calendar month exceed the 
limitation on the compensation for such month prescribed in 
subsection (j) of this section. Wages and self-employment 
income included as compensation for purposes of this 
subdivision shall, in the absence of evidence to the contrary, 
be presumed to have been paid in equal proportions with respect 
to all months in the calendar quarter in which credited, in the 
case of wages paid before 1978, or in equal proportions with 
respect to all months in the calendar year in which credited, 
in the case of self-employment income and in the case of wages 
paid after 1977.]
  [(2)] (1) If, in the case of an individual whose annuity 
under section 2(a)(1) of this Act began to accrue prior to 
January 1, 1983, the annuity (before any reduction due to such 
individual's entitlement to a monthly insurance benefit under 
the Social Security Act and disregarding any amount provided by 
subsection (h) of this section) plus the supplemental annuity 
to which such individual is entitled for any month under this 
Act, together with the annuity, if any, of the spouse of such 
individual (before any reduction due to such spouse's 
entitlement to a wife's or husband's insurance benefit under 
the Social Security Act and disregarding any amount provided by 
section 4(e) of this Act, before any reductions under the 
provisions of section 2(f) of this Act, is less than the total 
amount which would have been payable to such individual and his 
spouse for such month, on the basis of the individual's 
compensation and years of service, under the provisions of the 
Railroad Retirement Act of 1937 as in effect on December 31, 
1974, disregarding, for purposes of the computations under such 
Railroad Retirement Act of 1937, compensation for any month 
after December 31, 1974, in excess of one-twelfth of the 
maximum annual taxable ``wages'' (as defined in section 3121 of 
the Internal Revenue Code of 1954) for the calendar year 1974, 
the annuity of such individual and the annuity of such spouse, 
if any, shall be increased[, without regard to the provisions 
of subdivision (1) of this subsection,] proportionately so as 
to equal such total amount. For the purpose of computing 
amounts under this subdivision, the Board shall have the 
authority to approximate the effect of the reductions 
prescribed by sections 3(a)(2) and 3(a)(3) of the Railroad 
Retirement Act of 1937. For purposes of computing amounts 
payable under the Railroad Retirement Act of 1937, any 
increases in the amounts determined under the first proviso of 
section 3(e) of such Act which would have become effective 
after December 31, 1974, shall be disregarded.
  [(3)] (2) If for any month in which an annuity accrues and is 
payable under this Act the annuity to which an individual is 
entitled under this Act (or would have been entitled except for 
a reduction pursuant to a joint and survivor election), 
together with the annuity, if any, of the spouse and divorced 
wife of such individual, is less than the total amount, or the 
additional amount, which would have been payable to all persons 
for such month under the Social Security Act if such 
individual's service as an employee after December 31, 1936, 
were included in the term ``employment'' as defined in that 
Act, the annuities of the individual and spouse shall be 
increased proportionately to such total amount, or such 
additional amount: Provided, however, That if an annuity 
accrues to an individual or a spouse for a part of a month, the 
amount payable for such part of a month under this subdivision 
shall be one-thirtieth of the amount payable under this 
subdivision for an entire month, multiplied by the number of 
days in such part of a month. For purposes of this subdivision, 
(i) persons not entitled to an annuity under section 2 of this 
Act shall not be included in the computation under this 
subdivision except a spouse who could qualify for an annuity 
under section 2(c) of this Act if the individual from whom the 
spouse's annuity under this Act would derive had attained age 
60 or 62, as the case may be, and such individual's children 
who meet the definition as such contained in section 216(e) of 
the Social Security Act; (ii) after an annuity has been 
certified for payment and this subdivision was inapplicable 
after allowing for any waiting period under section 223(c)(2) 
of the Social Security Act, and after having considered the 
inclusion of all persons who were then eligible for inclusion 
in the computation under this subdivision, or was then 
applicable but later became inapplicable, any recertification 
in such annuity under this subdivision shall not take into 
account persons not entitled to an annuity under section 2 of 
this Act except a spouse who could qualify for an annuity under 
section 2(c) of this Act when she attains age 60 or 62, as the 
case may be, if the individual from whom the spouse's annuity 
would derive had attained age 60 or 62, as the case may be, and 
who was married to such individual at the time he applied for 
his annuity; and (iii) in computing the amount to be paid under 
this subdivision the only benefits under title II of the Social 
Security Act which shall be considered shall be those to which 
the persons included in the computation are entitled.

           *       *       *       *       *       *       *


              computation of spouse and survivor annuities

  Sec. 4. (a)(1) * * *
  (2) For purposes of this subsection, [if an individual is 
entitled to an annuity under paragraph (ii) of section 2(a)(1) 
of this Act which did not begin to accrue before such 
individual attained age 62, the spouse of such individual 
entitled to an annuity under clause (B) of paragraph (ii) of 
section 2(c)(1) of this Act] a spouse entitled to an annuity 
under section 2(c)(1)(ii)(B) of this Act shall be deemed to 
have attained retirement age (as defined in section 216(l) of 
the Social Security Act.
  [(3) In the case of an individual entitled to an annuity  
under section 2(a)(1)(ii) of this Act which began to accrue 
before such individual attained age 62, the annuity of the 
spouse of such individual under section 2(c) of this Act shall, 
in lieu of an annuity amount provided under subdivision (1), be 
in an amount equal to--
          [(i) for each month prior to the first month 
        throughout which both the individual and the spouse are 
        age 62, 50 percentum of that portion of the 
        individual's annuity as is, or was prior to such 
        individual's attaining age 62, computed under section 
        3(a)(3)(i) of this Act, reduced to the same extent such 
        amount would be reduced under section 202(b)(4) of the 
        Social Security Act (in the case of a wife) or under 
        section 202(c)(2) of the Social Security Act (in the 
        case of a husband) as if such amount were a wife's 
        insurance benefit or a husband's insurance benefit, 
        respectively, under such Act; and
          [(ii) for months beginning with the first month 
        throughout which both the individual and the spouse are 
        age 62, the amount (after any reduction on account of 
        age are based on the spouse's age at the time the 
        amount under this paragraph first becomes payable but 
        before any deductions on account of work) of the wife's 
        insurance benefit or the husband's insurance benefit to 
        which such spouse would have been entitled under the 
        Social Security Act if the individual's service as an 
        employee after December 31, 1936, had been included in 
        the term ``employment'' as defined in that Act.
  [(4) In the case of an individual entitled to an annuity 
under paragraph (iv) or (v) of section 2(a)(1) of this Act, the 
annuity of the spouse of such individual entitled to an annuity 
under section 2(c)(1)(ii)(B) of this Act shall, in lieu of an 
annuity amount provided under subdivision (1), be in an amount 
equal to the amount (after any reduction on account of age but 
before any deductions on account of work) of the wife's 
insurance benefit or the husband's insurance benefit to which 
such spouse would have been entitled under the Social Security 
Act if the individual's service as an employee after December 
31, 1936, had been included in the term ``employment'' as 
defined in that Act. For purposes of this subdivision, spouses 
who have not attained age 62 shall be deemed to have attained 
age 62.]
  (3) If a spouse entitled to an annuity under section 
2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), or section 2(c)(2) of 
this Act or a divorced spouse entitled to an annuity under 
section 2(c)(4) of this Act on the basis of the employment 
record of an employee who will have completed less than 10 
years of service is entitled to a benefit under section 202(a), 
section 202(b), or section 202(c) of the Social Security Act 
which began to accrue before the annuity under section 
2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), section 2(c)(2), or 
section 2(c)(4) of this Act, the annuity amount provided under 
this subsection shall be computed as though the annuity under 
this Act began to accrue on the later of (A) the date on which 
the benefit under section 202(a), section 202(b), or section 
202(c) of the Social Security Act began or (B) the first date 
on which the annuitant met the conditions for entitlement to an 
age reduced annuity under this Act other than the conditions 
set forth in sections 2(e)(1) and 2(e)(2) of this Act and the 
requirement that an application be filed.

           *       *       *       *       *       *       *

  [(c) If (A) the total amount of the annuity of a spouse of an 
individual as computed under the preceding subsections of this 
section as of the date on which the annuity of such individual 
under section 2(a)(1) of this Act began to accrue (before any 
reduction due to such spouse's entitlement to a monthly 
insurance benefit under the Social Security Act) plus (B) the 
total amount of the annuity and supplemental annuity of the 
individual (before any reduction due to such individual's 
entitlement to a monthly insurance benefit under the Social 
Security Act) subject to the provisions of section 3(f)(1) of 
this Act would, before any reductions in the amounts specified 
in clauses (A) and (B) on account of age and disregarding any 
increases in such amounts which become effective after the date 
on which the individual's annuity under section 2(a)(1) of this 
Act began to accrue, exceed the amount determined under clauses 
(A) and (B) of section 3(f)(1) of this Act, the portion of the 
annuity of such spouse determined under subsection (b) of this 
section as of the date on which the individual's annuity under 
section 2(a)(1) began to accrue shall be reduced until the sum 
of the amounts specified in clauses (A) and (B) of the 
subsection equals the amount determined under clauses (A) and 
(B) of section 3(f)(1) or until such amount under subsection 
(b) is reduced to zero, whichever occurs first. If, after such 
amount under subsection (b) is reduced to zero, the sum of the 
remaining amounts specified in clauses (A) and (B) of this 
subsection still exceeds the amount determined under clauses 
(A) and (B) of section 3(f)(1), the supplemental annuity of the 
individual first, and then, if necessary, the annuity amount of 
the individual computed under subsections (b), (c), and (d) of 
section 3 as of the date on which the individual's annuity 
under section 2(a)(1) began to accrue, shall be reduced until 
the amounts specified in clauses (A) and (B) of this subsection 
equals the amounts determined under clauses (A) and (B) of 
section 3(f)(1) or until such supplemental annuity and such 
annuity amount are reduced to zero, whichever occurs first. 
Notwithstanding the preceding provisions of this subsection, 
the provisions of this subsection shall not operate to reduce 
the total of the amounts specified in clauses (A) and (B) of 
this subsection below $1,200.]

           *       *       *       *       *       *       *

  (g)(1)  * * *

           *       *       *       *       *       *       *

  (10)(i) If for any month the unreduced annuity provided under 
this section for a widow or widower is less than the widow's or 
widower's initial minimum amount computed pursuant to paragraph 
(ii) of this subdivision, the unreduced annuity shall be 
increased to that initial minimum amount. For the purposes of 
this subdivision, the unreduced annuity is the annuity without 
regard to any deduction on account of work, without regard to 
any reduction for entitlement to an annuity under section 
2(a)(1) of this Act, without regard to any reduction for 
entitlement to a benefit under title II of the Social Security 
Act, and without regard to any reduction for entitlement to a 
public service pension pursuant to section 202(e)(7), 
202(f)(2), or 202(g)(4) of the Social Security Act.
  (ii) For the purposes of this subdivision, the widow or 
widower's initial minimum amount is the amount of the unreduced 
annuity computed at the time an annuity is awarded to that 
widow or widower, except that--
          (A) in subsection (g)(1)(i) ``100 percentum'' shall 
        be substituted for ``50 percentum''; and
          (B) in subsection (g)(2)(ii) ``130 percentum'' shall 
        be substituted for ``80 percentum'' both places it 
        appears.
  (iii) If a widow or widower who was previously entitled to a 
widow's or widower's annuity under section 2(d)(1)(ii) of this 
Act becomes entitled to a widow's or widower's annuity under 
section 2(d)(1)(i) of this Act, a new initial minimum amount 
shall be computed at the time of award of the widow's or 
widower's annuity under section 2(d)(1)(i) of this Act.

           *       *       *       *       *       *       *


                   annuity beginning and ending dates

  Sec. 5. (a)  * * *

           *       *       *       *       *       *       *

  (b) An application for any payment under this Act shall be 
made and filed in such manner and form as the Board may 
prescribe. [An application filed with the Board for an annuity 
under this Act shall, unless the applicant specified otherwise, 
be deemed to be an application for any benefit to which such 
applicant may be entitled under this Act or title II of the 
Social Security Act.] An application filed with the Board for 
an employee annuity, spouse annuity, or divorced spouse annuity 
on the basis of the employment record of an employee who will 
have completed less than ten years of service shall be deemed 
to be an application for any benefit to which such applicant 
may be entitled under this Act or section 202(a), section 
202(b), or section 202(c) of the Social Security Act. An 
application filed with the Board for an annuity on the basis of 
the employment record of an employee who will have completed 
ten years of service shall, unless the applicant specified 
otherwise, be deemed to be an application for any benefit to 
which such applicant may be entitled under this Act or title II 
of the Social Security Act. An individual who was entitled to 
an annuity under paragraph (iv) or (v) of section 2(a)(1) of 
this Act for the month preceding the month in which he attained 
retirement age (as defined in section 216(l) of the Social 
Security Act), shall be deemed to have filed an application for 
an annuity under paragraph (i) of section 2(a)(1) on the date 
on which he attained retirement age (as defined in section 
216(l) of the Social Security Act), and a widow or widower who 
was entitled to an annuity under section 2(d)(1) of this Act on 
the basis of disability for the month preceding the month in 
which she or he attained age 60, shall be deemed to have filed 
an application for an annuity under such section 2(d)(1) on the 
basis of age on the date on which she or he attained age 60.

           *       *       *       *       *       *       *


                           lump-sum payments

  Sec. 6. (a)  * * *
  (b)(1) * * *
  (2) Upon the death of an individual who will not have 
completed ten years of service prior to January 1, 1975, but 
who (i) will have completed ten years of service (or five or 
more years of service, all of which accrues after December 31, 
1995) at the time of his death (ii) will have had a current 
connection with the railroad industry at the time of his death, 
and (iii) will have died leaving no widow surviving divorced 
wife, widower, child, or parent who would on proper application 
therefore be entitled to receive an annuity under section 2(d) 
of this Act for the month in which such death occurred, a lump-
sum death payment shall be made in accordance with the 
provisions of section 202(i) of the Social Security Act in an 
amount equal to the amount which would have been payable under 
such section 202(i) if such individual's service as an employee 
after December 31, 1936, were included in the term 
``employment'' as defined in that Act. If a lump sum would be 
payable to a widow or widower under this subdivision except for 
the fact that a survivor will have been entitled to receive an 
annuity for the month in which the individual will have died, 
but within one year after the individual's death there will not 
have accrued to survivors of the individual, by reason of his 
death, annuities which, after all deductions pursuant to 
sections 2(g) and 2(h) of this Act, are equal to such lump sum, 
a payment equal to the amount by which such lump sum exceeds 
such annuities so accrued after such deductions shall then 
nevertheless be made under this subdivision to the widow or 
widower to whom a lump sum would have been payable under this 
subdivision except for the fact that a monthly benefit under 
section 2(d) of this Act was payable for the month in which the 
individual dies, if such widow or widower will not have died 
before receiving payment of such lump sum.

           *       *       *       *       *       *       *

  (e)(1) Every individual who will have completed ten years of 
service (or five or more years of service, all of which accrues 
after December 31, 1995) at the time of his retirement or 
death, who will have received compensation in the nature of 
separation of severance pay on or after January 1, 1985, and 
who would have been credited with additional months of service 
pursuant to section 3(i)(4) of this Act except for the fact 
that such individual was not in an employment relation to one 
or more employers nor an employee representative in such 
months, shall, at the time his annuity under section 2(a)(1) of 
this Act begins to accrue, be entitled to a lump sum in the 
amount provided under subdivision (2) of this subsection. If 
the full amount of a lump sum under this subsection cannot be 
determined at the time an individual's annuity under sectin 
2(a)(1) begins to accure, such lump sum shall be payable at 
such time thereafter as such amount can be determined. If an 
individual otherwise eligible for a lump sum under this section 
dies before he becomes entitled to an annuity under section 
2(a)(1), or before he receives payment of such lump sum, such 
lump sum shall be payable to the person, if any, who is 
determined by the Board to be such individual's widow or 
widower and who will not have died before receiving payment of 
such lump sum. If there be no such widow or widower, such lump 
sum shall be payable to the children, grandchildren, parents, 
brothers and sisters, or the estate of the deceased individual 
in the same manner as if such lump sum were a lump sum payable 
under subsection (c)(1) of this section.

           *       *       *       *       *       *       *


                     powers and duties of the board

  Sec. 7. (a)  * * *
  (b)(1)  * * *
  (2) In the case of--
          (A) an individual who will have completed ten years 
        of service (or five or more years of service, all of 
        which accrues after December 31, 1995) creditable under 
        this Act,

           *       *       *       *       *       *       *

  [(4) The Board shall from time to time certify to the 
Secretary of the Treasury the name and address of each 
individual entitled to receive a payment, the amount of such 
payment, and the time at which it should be made, and the 
Secretary of the Treasury through the Division of Disbursements 
of the Treasury Department, and prior to audit by the General 
Accounting Office, shall make payment in accordance with the 
certification by the Board.]
  (4)(A) The Railroad Retirement Board, after consultation with 
the Board of Trustees of the Railroad Retirement Investment 
Trust and the Secretary of the Treasury, shall enter into an 
arrangement with a nongovernmental financial institution to 
serve as disbursing agent for benefits payable under this Act 
who shall disburse consolidated benefits under this Act to each 
recipient. Pending the taking effect of that arrangement, 
benefits shall be paid as under the law in effect prior to the 
enactment of the Railroad Retirement and Survivors' Improvement 
Act of 2001.
  (B) The Board shall from time to time certify--
          (i) to the Secretary of the Treasury the amounts 
        required to be transferred from the Social Security 
        Equivalent Benefit Account and the Dual Benefits 
        Payments Account to the disbursing agent to make 
        payments of benefits and the Secretary of the Treasury 
        shall transfer those amounts;
          (ii) to the Board of Trustees of the Railroad 
        Retirement Investment Trust the amounts required to be 
        transferred from the Railroad Retirement Investment 
        Trust to the disbursing agent to make payments of 
        benefits and the Board of Trustees shall transfer those 
        amounts; and
          (iii) to the disbursing agent the name and address of 
        each individual entitled to receive a payment, the 
        amount of such payment, and the time at which the 
        payment should be made.

           *       *       *       *       *       *       *

  (c)(1) Benefit payments determined by the Board to be payable 
under this Act shall be made [from the Railroad Retirement 
Account] by the disbursing agent under subsection (b)(4) from 
money transferred to it from the Railroad Retirement Investment 
Trust or the Social Security Equivalent Benefit Account, as the 
case may be, except that [payments of supplemental annuities 
under section 2(b) of this Act shall be made from the Railroad 
Retirement Supplemental Account, and] payments of annuity 
amounts made under sections 3(h), 4(e), and 4(h) of this Act 
and under sections 204(a)(3), 204(a)(4), 206(3), and 207(3) of 
Public Law 93-445 shall be made by the disbursing agent under 
subsection (b)(4) from money transferred to it from the Dual 
Benefits Payments Account. In any fiscal year, the total 
amounts paid under such sections shall not exceed the total 
sums appropriated to the Dual Benefits Payments Account for 
that fiscal year. The Board shall prescribe regulations for 
allocation of annuity amounts which would without regard to 
such regulations be payable under sections 3(h), 4(e), and 4(h) 
of this Act and sections 204(a)(3), 204(a)(4), 206(3), and 
207(3) of Public Law 93-445 so that the sums appropriated to 
the Dual Benefits Payments Account for a fiscal year so far as 
practicable, are expended in equal monthly installments 
throughout such fiscal year, and are distributed so that 
recipients are paid annuity amounts which bear the same ratio 
to the annuity amounts such recipients would have received but 
for such regulations as the ratio of the total sums 
appropriated to pay such annuity amounts bear to the total sums 
necessary to pay such annuity amounts without regard to such 
regulations. Notwithstanding any other provision of law, the 
entitlement of an individual to an annuity amount under section 
3(h), 4(e), or 4(h) of this Act or section 204(a)(3), 
204(a)(4), 206(3), or 207(3) of Public Law 93-445 for any month 
in which the amount payable to such individual is allocated 
under the regulations prescribed by the Board under this 
subsection shall not exceed the amount so allocated for that 
month to such individual.

           *       *       *       *       *       *       *

  (d)(1) * * *
  (2) Except as otherwise provided in this subsection, every 
person who--
          (i) has attained age 65 and (A) is entitled to an 
        annuity under this Act or (B) would be entitled to such 
        an annuity had he ceased compensated service and, in 
        the case of a spouse or divorced wife, had such 
        spouse's husband or wife ceased compensated service or 
        (C) bears a relationship to an employee which, by 
        reason of section [3(f)(3)] 3(f)(2) of this Act, has 
        been, or would be, taken into account in calculating 
        the amount of the annuity of such employee; or
          (ii) has not attained age 65 and (A) has been 
        entitled to an annuity under section 2 of this Act, or 
        under the Railroad Retirement Act of 1937 and section 2 
        of this Act, or could have been includable in the 
        computation of an annuity under section [3(f)(3)] 
        3(f)(2) of this Act, for not less than 24 months and 
        (B) could have been entitled for 24 calendar months, 
        and could currently be entitled, to monthly insurance 
        benefits under section 223 of the Social Security Act 
        or under section 202 of that Act on the basis of 
        disability if service as an employee after December 31, 
        1936, had been included in the term ``employment'' as 
        defined in that Act and if an application for 
        disability benefits had been filed,
shall be certified to the Secretary of Health, Education, and 
Welfare as a qualified railroad retirement beneficiary under 
section 226 of the Social Security Act.

           *       *       *       *       *       *       *


                      railroad retirement account

  Sec. 15. (a) The Railroad Retirement Account established by 
section 15(a) of the Railroad Retirement Act of 1937 shall 
continue to be maintained in the Treasury of the United States. 
There is hereby appropriated to such Account for each fiscal 
year, beginning with the fiscal year ending June 30, 1975, to 
provide for the payment of benefits to be made from such 
Account in accordance with the provisions of section 7(c)(1) of 
this Act, and to provide for expenses necessary for the Board 
in the administration of all provisions of this Act, an amount 
equal to amounts covered into the Treasury (minus refunds) 
during each fiscal year under the Railroad Retirement Tax Act[, 
except those portions of the amounts covered into the Treasury 
under sections 3211(b), 3221(c), and 3221(d) of such Tax Act as 
are necessary to provide sufficient funds to meet the 
obligation to pay supplemental annuities at the level provided 
under section 3(e) of this Act and, with respect to those 
entitled to supplemental annuities under section 205(a) of 
title II of this Act, at the level provided under section 
205(a). The Board is directed to determine what portion of the 
taxes collected under sections 3211(b), 3221(c), and 3221(d) of 
the Railroad Retirement Tax Act is to be credited to the 
Railroad Retirement Account pursuant to the preceding 
provisions of this subsection and what portion of such taxes is 
to be credited to the Railroad Retirement Supplemental Account 
pursuant to the provisions of subsection (c) of this section. 
The Board shall make such a determination with respect to each 
calendar quarter commencing with the quarter beginning January 
1, 1975, shall make each such determination not later than 
fifteen days before each calendar quarter, and shall, as soon 
as practicable after each such determination, advise the 
Secretary of the Treasury of the determination made. The 
Secretary of the Treasury shall credit the amounts covered into 
the Treasury under sections 3211(b), 3221(c), and 3221(d) of 
the Railroad Retirement Tax Act to the Railroad Retirement 
Account and the Railroad Retirement Supplemental Account in 
such proportions as is determined by the Board pursuant to the 
provisions of this subsection].

           *       *       *       *       *       *       *

  [(c) The Railroad Retirement Supplemental Account established 
by section 15(b) of the Railroad Retirement Act of 1937 shall 
continue to be maintained in the Treasury of the United States. 
There is hereby appropriated to such account for each fiscal 
year, beginning with the fiscal year ending June 30, 1975, out 
of any moneys in the Treasury not otherwise appropriated, to 
provide for the payment of supplemental annuities under section 
2(b) of this Act, and to provide for the expenses necessary for 
the Board in the administration of the payment of such 
supplemental annuities, an amount equal to such portions of the 
amounts covered into the Treasury (minus refunds) during each 
fiscal year under sections 3211(b), 3221(c), and 3221(d) of the 
Railroad Retirement Tax Act as are not appropriated to the 
Railroad Retirement Account pursuant to the provisions of 
subsection (a) of this section. Whenever the Board finds at any 
time that the balance in the Railroad Retirement Supplemental 
Account will be insufficient to pay the supplemental annuities 
which it estimates are due, or will become due, under section 
2(b) of this Act, it shall request the Secretary of the 
Treasury to transfer from the Railroad Retirement Account to 
the credit of the Railroad Retirement Supplemental Account such 
moneys as the Board estimates would be necessary for the 
payment of such supplemental annuities, and the Secretary shall 
make such transfer. Whenever the Board finds that the balance 
in the Railroad Retirement Supplemental Account, without regard 
to the amounts transferred pursuant to the next preceding 
sentence, is sufficient to pay such supplemental annuities, it 
shall request the Secretary of the Treasury to retransfer from 
the Railroad Retirement Supplemental Account to the credit of 
the Railroad Retirement Account such moneys as in its judgment 
are not needed for the payment of such supplemental annuities, 
plus interest at an annual rate equal to the average rate of 
interest borne by all special obligations held by the Railroad 
Retirement Account on the last day of the preceding fiscal 
year, rounded to the nearest multiple of one-eight of 1 
percentum, and the Secretary shall make such retransfer.]
  (d)(1) There is hereby created an account in the Treasury of 
the United States to be known as the Dual Benefits Payments 
Account. There is hereby authorized to be appropriated to such 
account for each fiscal year beginning with the fiscal year 
ending September 30, 1982, such sums as are necessary to pay 
during such fiscal year the amounts of annuities estimated by 
the Board to be paid under sections 3(h), 4(e), and 4(h) of 
this Act and under sections 204(a)(3), 204(a)(4), 206(3), and 
207(3) of Public Law 93-445. Not more than 30 days prior to 
each fiscal year beginning with the fiscal year ending 
September 30, 1982, the Board may request the Secretary of the 
Treasury to transfer from the Railroad Retirement Account to 
the credit of the Dual Benefits Payments Account any amount not 
exceeding the amount that the Board estimates will be necessary 
to pay on the first day of the next succeeding month the 
annuity amounts under sections 3(h), 4(e), and 4(h) of this Act 
and under sections 204(a)(3), 204(a)(4), 206(3), and 207(3) of 
Public Law 93-445, taking into account any reduction in such 
annuity amounts as determined under section 7(c)(1) of this 
Act, and the Secretary of the Treasury shall make such 
transfer, but at no time shall the total amount of money 
outstanding to the Dual Benefits Payments Account from the 
Railroad Retirement Account exceed the amount necessary to pay 
the annuity amounts under sections 3(h), 4(e), and 4(h) of this 
Act and sections 204(a)(3), 204(a)(4), 206(3), and 207(3) of 
Public Law 93-445 for one month. Not more than 10 days after 
the funds appropriated to the Dual Benefits Payments Account 
for each such fiscal year are received into such Account, the 
Board shall request the Secretary of the Treasury to retransfer 
from the Dual Benefits Payments Account to the credit of the 
Railroad Retirement Account an amount equal to the amount 
transferred to the Dual Benefits Payments Account prior to or 
during such fiscal year under the preceding sentence, together 
with such additional amount determined by the Board to be equal 
to the loss of interest to the Railroad Retirement Account 
resulting from such transfer, and the Secretary of the Treasury 
shall make such retransfer. The Secretary of the Treasury shall 
from time to time transfer from the Dual Benefits Payments 
Account to the disbursing agent under section 7(b)(4) amounts 
necessary to pay benefits payable from that Account.

           *       *       *       *       *       *       *

  (e) At the request and direction of the Board, it shall be 
the duty of the Secretary of the Treasury (hereinafter referred 
to as the ``Secretary'') to invest such portion of the amounts 
credited to the Railroad Retirement Account[, the Dual Benefits 
Payments Account and the Railroad Retirement Supplemental 
Account as, in the judgment of the Board, is not immediately 
required for the payment of annuities, supplemental annuities, 
and death benefits. Such investments may be made only] and the 
Dual Benefits Payments Account as are not transferred to the 
Railroad Retirement Investment Trust as the Board may determine 
in interest-bearing obligations of the United States or in 
obligations guaranteed as to both principal and interest by the 
United States. For such purpose such obligations may be 
acquired (A) on original issue at the issue price; or (B) by 
purchase of outstanding obligations at the market price. The 
purposes for which obligations of the United States may be 
issued under [the Second Liberty Bond Act, as amended] chapter 
31 of title 31, are hereby extended to authorize the issuance 
at par of special obligations exclusively to the accounts. Such 
obligations issued for purchase by the accounts shall have 
maturities fixed with due regard for the needs of the accounts, 
and shall bear interest at a rate equal to the average market 
yield, computed as of the end of the calendar month next 
preceding the date of such issue, borne by all marketable 
interest-bearing notes of the United States then forming a part 
of the public debt that are not due or callable until after the 
expiration of three years from the end of such calendar month, 
except that where such rate is not a multiple of one-eighth of 
1 percentum, the rate of interest on such obligations shall be 
the multiple of one-eighth of 1 percentum nearest such rate: 
Provided, That the rate of interest on such obligations shall 
in no case be less than 3 percentum per annum. At the request 
of the Board the Secretary shall purchase other interest-
bearing obligations of the United States, or obligations 
guaranteed as to both principal and interest by the United 
States, or other obligations which are lawful investments for 
trust funds of the United States, on original issue or at the 
market price: Provided, That the interest yield of such 
obligations shall not be less than the interest rate determined 
in accordance with the preceding sentence. At the request of 
the Board, the Secretary shall sell at the market price such 
obligations in the accounts (other than special obligations 
issued exclusively to the accounts) as the Board designates. 
The Board shall from time to time request the Secretary to 
redeem such special obligations issued exclusively to the 
accounts as the Board designates and upon such request the 
Secretary shall redeem such obligations at par plus accrued 
interest. All requests of the Board to the Secretary, provided 
for in this subsection, shall be mandatory upon the Secretary. 
It shall be the duty of the Board to determine at all times 
what proportion of the accounts shall be invested in other than 
special obligations issued to the accounts and further to 
determine which of such obligations available to the accounts 
consistent with [the foregoing requirements] the requirements 
of this subsection will provide the greatest rate of return on 
the funds invested.

           *       *       *       *       *       *       *

  (j) Railroad Retirement Investment Trust.--
          (1) Establishment.--The Railroad Retirement 
        Investment Trust (hereinafter in this subsection 
        referred to as the ``Trust'') is hereby established as 
        a trust domiciled in the District of Columbia and 
        shall, to the extent not inconsistent with this Act, be 
        subject to the laws of the District of Columbia 
        applicable to such trusts. The Trust shall manage and 
        invest its assets in the manner set forth in this 
        subsection.
          (2) Not a federal agency or instrumentality.--The 
        Trust is not a department, agency, or instrumentality 
        of the Government of the United States and shall not be 
        subject to title 31, United States Code.
          (3) Board of trustees.--
                  (A) Generally.--The Trust shall have a Board 
                of Trustees, consisting of 7 members, each 
                appointed by a unanimous vote of the Railroad 
                Retirement Board. The Railroad Retirement Board 
                may remove any member so appointed by unanimous 
                vote. Of the members, 3 shall represent the 
                interests of labor, 3 shall represent the 
                interests of management, and 1 shall represent 
                the interests of the general public. The 
                members of the Board of Trustees shall not be 
                considered officers or employees of the 
                Government of the United States.
                  (B) Qualifications.--Members of the Board of 
                Trustees shall be appointed only from among 
                persons who have experience and expertise in 
                the management of financial investments and 
                pension plans. No member of the Railroad 
                Retirement Board shall be eligible to be a 
                member of the Board of Trustees.
                  (C) Terms.--Except as provided in this 
                subparagraph, each member shall be appointed 
                for a 3-year term. The initial members 
                appointed under this paragraph shall be divided 
                into equal groups so nearly as may be, of which 
                one group will be appointed for a 1-year term, 
                one for a 2-year term, and one for a 3-year 
                term. A vacancy in the Board of Trustees shall 
                not affect the powers of the Board of Trustees 
                and shall be filled in the same manner as the 
                selection of the member whose departure caused 
                the vacancy. Upon the expiration of a term of a 
                member of the Board of Trustees, that member 
                shall continue to serve until a successor is 
                appointed.
          (4) Powers of the board of trustees.--The Board of 
        Trustees shall--
                  (A) retain independent advisers to assist it 
                in the formulation and adoption of its 
                investment guidelines;
                  (B) retain independent investment managers to 
                invest the assets of the Trust in a manner 
                consistent with such investment guidelines;
                  (C) invest assets in the Trust, pursuant to 
                the policies adopted in subparagraph (A);
                  (D) pay administrative expenses of the Trust 
                from the assets in the Trust; and
                  (E) transfer money to the disbursing agent or 
                as otherwise provided in section 7(b)(4), to 
                pay benefits payable under this Act from the 
                assets of the Trust.
          (5) Reporting requirements and fiduciary standards.--
        The following reporting requirements and fiduciary 
        standards shall apply with respect to the Trust:
                  (A) Duties of the board of trustees.--The 
                Trust and each member of the Board of Trustees 
                shall discharge their duties with respect to 
                the assets of the Trust solely in the interest 
                of the Railroad Retirement Board and through 
                it, the participants and beneficiaries of the 
                programs funded under this Act--
                          (i) for the exclusive purpose of--
                                  (I) providing benefits to 
                                participants and their 
                                beneficiaries; and
                                  (II) defraying reasonable 
                                expenses of administering the 
                                functions of the Trust;
                          (ii) with the care, skill, prudence, 
                        and diligence under the circumstances 
                        then prevailing that a prudent person 
                        acting in a like capacity and familiar 
                        with such matters would use in the 
                        conduct of an enterprise of a like 
                        character and with like aims;
                          (iii) by diversifying investments so 
                        as to minimize the risk of large 
                        losses, unless under the circumstances 
                        it is clearly prudent not to do so; and
                          (iv) in accordance with Trust 
                        governing documents and instruments 
                        insofar as such documents and 
                        instruments are consistent with this 
                        Act.
                  (B) Prohibitions with respect to members of 
                the board of trustees.--No member of the Board 
                of Trustees shall--
                          (i) deal with the assets of the Trust 
                        in the trustee's own interest or for 
                        the trustee's own account;
                          (ii) in an individual or in any other 
                        capacity act in any transaction 
                        involving the assets of the Trust on 
                        behalf of a party (or represent a 
                        party) whose interests are adverse to 
                        the interests of the Trust, the 
                        Railroad Retirement Board, or the 
                        interests of participants or 
                        beneficiaries; or
                          (iii) receive any consideration for 
                        the trustee's own personal account from 
                        any party dealing with the assets of 
                        the Trust.
                  (C) Exculpatory provisions and insurance.--
                Any provision in an agreement or instrument 
                that purports to relieve a trustee from 
                responsibility or liability for any 
                responsibility, obligation, or duty under this 
                Act shall be void: Provided, however, That 
                nothing shall preclude--
                          (i) the Trust from purchasing 
                        insurance for its trustees or for 
                        itself to cover liability or losses 
                        occurring by reason of the act or 
                        omission of a trustee, if such 
                        insurance permits recourse by the 
                        insurer against the trustee in the case 
                        of a breach of a fiduciary obligation 
                        by such trustee;
                          (ii) a trustee from purchasing 
                        insurance to cover liability under this 
                        section from and for his own account; 
                        or
                          (iii) an employer or an employee 
                        organization from purchasing insurance 
                        to cover potential liability of one or 
                        more trustees with respect to their 
                        fiduciary responsibilities, 
                        obligations, and duties under this 
                        section.
                  (D) Bonding.--Every trustee and every person 
                who handles funds or other property of the 
                Trust (hereafter in this subsection referred to 
                as ``Trust official'') shall be bonded. Such 
                bond shall provide protection to the Trust 
                against loss by reason of acts of fraud or 
                dishonesty on the part of any Trust official, 
                directly or through the connivance of others, 
                and shall be in accordance with the following:
                          (i) The amount of such bond shall be 
                        fixed at the beginning of each fiscal 
                        year of the Trust by the Railroad 
                        Retirement Board. Such amount shall not 
                        be less than 10 percent of the amount 
                        of the funds handled. In no case shall 
                        such bond be less than $1,000 nor more 
                        than $500,000, except that the Railroad 
                        Retirement Board, after consideration 
                        of the record, may prescribe an amount 
                        in excess of $500,000, subject to the 
                        10 percentum limitation of the 
                        preceding sentence.
                          (ii) It shall be unlawful for any 
                        Trust official to receive, handle, 
                        disburse, or otherwise exercise custody 
                        or control of any of the funds or other 
                        property of the Trust without being 
                        bonded as required by this subsection 
                        and it shall be unlawful for any Trust 
                        official, or any other person having 
                        authority to direct the performance of 
                        such functions, to permit such 
                        functions, or any of them, to be 
                        performed by any Trust official, with 
                        respect to whom the requirements of 
                        this subsection have not been met.
                          (iii) It shall be unlawful for any 
                        person to procure any bond required by 
                        this subsection from any surety or 
                        other company or through any agent or 
                        broker in whose business operations 
                        such person has any control or 
                        significant financial interest, direct 
                        or indirect.
                  (E) Audit and report.--
                          (i) The Trust shall annually engage 
                        an independent qualified public 
                        accountant to audit the financial 
                        statements of the Trust.
                          (ii) The Trust shall submit an annual 
                        management report to the Congress not 
                        later than 180 days after the end of 
                        the Trust's fiscal year. A management 
                        report under this subsection shall 
                        include--
                                  (I) a statement of financial 
                                position;
                                  (II) a statement of 
                                operations;
                                  (III) a statement of cash 
                                flows;
                                  (IV) a statement on internal 
                                accounting and administrative 
                                control systems;
                                  (V) the report resulting from 
                                an audit of the financial 
                                statements of the Trust 
                                conducted under clause (i); and
                                  (VI) any other comments and 
                                information necessary to inform 
                                the Congress about the 
                                operations and financial 
                                condition of the Trust.
                          (iii) The Trust shall provide the 
                        President, the Railroad Retirement 
                        Board, and the Director of the Office 
                        of Management and Budget a copy of the 
                        management report when it is submitted 
                        to Congress.
                  (F) Enforcement.--The Railroad Retirement 
                Board may bring a civil action--
                          (i) to enjoin any act or practice by 
                        the Trust, its Board of Trustees, or 
                        its employees or agents that violates 
                        any provision of this Act; or
                          (ii) to obtain other appropriate 
                        relief to redress such violations, or 
                        to enforce any provisions of this Act.
          (6) Application of fiduciary standards to railroad 
        retirement board.--
                  (A) In general.--The provisions of paragraph 
                (5)(A) shall apply to the members of the 
                Railroad Retirement Board in the discharge of 
                their duty to appoint the members of the Board 
                of Trustees under paragraph (3)(A) in the same 
                manner as such provisions apply to the members 
                of the Board of Trustees.
                  (B) Enforcement.--For purposes of this 
                paragraph, the provisions of paragraph (5)(F) 
                shall apply by substituting ``the Secretary of 
                Labor'' for ``the Railroad Retirement Board''.
          (7) Rules and administrative powers.--The Board of 
        Trustees shall have the authority to make rules to 
        govern its operations, employ professional staff, and 
        contract with outside advisers, including the Railroad 
        Retirement Board, to provide legal, accounting, 
        investment advisory, or other services necessary for 
        the proper administration of this subsection. In the 
        case of contracts with investment advisory services, 
        compensation for such services may be on a fixed 
        contract fee basis or on such other terms and 
        conditions as are customary for such services.
          (8) Quorum.--Five members of the Board of Trustees 
        constitute a quorum to do business. Investment 
        guidelines must be adopted by a unanimous vote of the 
        entire Board of Trustees. All other decisions of the 
        Board of Trustees shall be decided by a majority vote 
        of the quorum present. All decisions of the Board of 
        Trustees shall be entered upon the records of the Board 
        of Trustees.
          (9) Funding.--The expenses of the Trust and the Board 
        of Trustees incurred under this subsection shall be 
        paid from the Trust.
  (k) Transfers to the Trust.--The Board shall, upon 
establishment of the Railroad Retirement Investment Trust and 
from time to time thereafter, direct the Secretary of the 
Treasury to transfer, in such manner as will maximize the 
investment returns to the Railroad Retirement system, that 
portion of the Railroad Retirement Account that is not needed 
to pay current administrative expenses of the Board to the 
Railroad Retirement Investment Trust. The Secretary shall make 
that transfer.
  (l) Railroad Retirement Investment Trust.--The Railroad 
Retirement Investment Trust shall from time to time transfer to 
the disbursing agent described in section 7(b)(4) or as 
otherwise directed by the Railroad Retirement Board pursuant to 
section 7(b)(4), such amounts as may be necessary to pay 
benefits under this Act (other than benefits paid from the 
Social Security Equivalent Benefit Account or the Dual Benefit 
Payments Account).

               social security equivalent benefit account

    Sec. 15A. (a)  * * *

           *       *       *       *       *       *       *

    (c)(1) Except as otherwise provided in this section, 
amounts in the Social Security Equivalent Benefit Account shall 
be available only for purposes of paying social security 
equivalent benefits under this Act and to provide for the 
administrative expenses of the Board allocable to social 
security equivalent benefits. The Secretary shall from time to 
time transfer to the disbursing agent under section 7(b)(4) 
amounts necessary to pay those benefits.'

           *       *       *       *       *       *       *

    (d)(1) Whenever the Board finds that the balance in the 
Social Security Equivalent Benefit Account will be insufficient 
to pay social security equivalent benefits which it estimates 
are due in any month, it shall request the Secretary of the 
Treasury to transfer from the Railroad Retirement Account to 
the credit of the Social Security Equivalent Benefit Account 
such moneys as the Board estimates will be necessary for the 
payment of such benefits, and the Secretary shall make such 
transfer. [Whenever later in such month there is a transfer to 
the Social Security Equivalent Benefit Account under paragraph 
(2) or (4) of section 7(c) of this Act, the amount so 
transferred shall be immediately retransferred to the Railroad 
Retirement Account. The amount retransferred under the 
preceding sentence shall not exceed the amount of any 
outstanding transfers under this paragraph from the Railroad 
Retirement Account plus such additional amounts determined by 
the Board to be equal to the loss of interest to the Railroad 
Retirement Account resulting from such outstanding transfers.
    [(2) Whenever the Board determines that--
          [(A) amounts in the Railroad Retirement Account will 
        not be sufficient to pay the annuities which it 
        estimates are due, or will become due, from such 
        Account, and
          [(B) the transfer under this paragraph will not 
        jeopardize the present or future payment of social 
        security equivalent benefits,
the Board shall request the Secretary of the Treasury to 
transfer from the Social Security Equivalent Benefit Account to 
the Railroad Retirement Account such moneys as the Board 
estimates will be necessary for the payment of such annuities, 
and the Secretary shall make such transfer. No transfer under 
this paragraph shall be required to be repaid.]
  (2) Upon establishment of the Railroad Retirement Investment 
Trust and from time to time thereafter, the Board shall direct 
the Secretary of the Treasury to transfer, in such manner as 
will maximize the investment returns to the Railroad Retirement 
system, the balance of the Social Security Equivalent Benefit 
Account not needed to pay current benefits and administrative 
expenses required to be paid from that Account to the Railroad 
Retirement Investment Trust, and the Secretary shall make that 
transfer. Any balance transferred under this paragraph shall be 
used by the Railroad Retirement Investment Trust only to pay 
benefits under this Act or to purchase obligations of the 
United States that are backed by the full faith and credit of 
the United States pursuant to chapter 31 of title 31, United 
States Code. The proceeds of sales of, and the interest income 
from, such obligations shall be used by the Trust only to pay 
benefits under this Act.

           *       *       *       *       *       *       *


            crediting service under the social security act

  Sec. 18. (1) * * *
  (2) For the purpose of determining (i) monthly insurance 
benefits under the Social Security Act to an employee who will 
have completed less than ten years of service (or less than 
five years of service, all of which accrues after December 31, 
1995) and to others deriving from him or her during his or her 
life and (ii) monthly insurance benefits and lump-sum death 
benefits under such Act with respect to the death of an 
employee who (A) will have completed less than ten years of 
service (or less than five years of service, all of which 
accrues after December 31, 1995) or (B) will have completed ten 
or more years of service (or five or more years of service, all 
of which accrues after December 31, 1995) but will not have had 
a current connection with the railroad industry at the time of 
his death, and for the purposes of section 203 and section 
216(i) of that Act, section 210(a)(9) of the Social Security 
Act and subdivision (1) of this section shall not operate to 
exclude from ``employment'' under the Social Security Act 
service which would otherwise be included in such 
``employment'' but for such sections. For such purpose, 
compensation paid in a calendar year shall, in the absence of 
evidence to the contrary, be presumed to have been paid in 
equal proportions with respect to all months in the year in 
which the employee will have been in service as an employee. In 
the application of the Social Security Act pursuant to this 
subdivision to service as an employee, all service as defined 
in section 1(d) of this Act shall be deemed to have been 
performed within the United States.

         automatic benefit eligibility requirement adjustments

  Sec. 19. (a)  * * *

           *       *       *       *       *       *       *

  (c) If section 226 or title XVII of the Social Security Act 
is amended at any time after December 31, 1974, to reduce the 
conditions of entitlement to, or to expand the nature of, the 
benefits payable thereunder, or if health care benefits in 
addition to, or in lieu of, the benefits payable under such 
section 226 or such title XVIII are provided by any provision 
of law which becomes effective at any time after December 31, 
1974, such reductions in the conditions of entitlement to 
benefits, such expanded benefits, or such additional, or 
substituted, health care benefits shall be available to every 
employee (as defined in this Act), and those deriving from him, 
in the same manner, and to the same, extent, as if his service 
as an employee after December 31, 1936, had been included in 
the term ``employment'' as defined in the Social Security Act. 
The Board shall have the same authority, in accordance with 
regulations prescribed by it, to determine the rights of 
employees who will have completed ten years of service (or five 
or more years of service, all of which accrues after December 
31, 1995), and of those deriving from such employees, to 
benefits provided by reason of the provisions of this 
subsection as the Secretary of Health, Education, and Welfare 
has with respect to individuals insured under the Social 
Security Act.
  (d) Notwithstanding the provisions of subsections (a), (b), 
and (c) of this section--
          (1)  * * *
          (2) No annuity shall be payable to a person by reason 
        of subsection (a) or (b) of this section unless the 
        individual upon whose compensation and years of service 
        such annuity would be based will have (A) completed ten 
        years of service (or five or more years of service, all 
        of which accrues after December 31, 1995), and (B) in 
        the case of a survivor, had a current connection with 
        the railroad industry at the time of his death.

           *       *       *       *       *       *       *


                          benefit preservation

    Sec. 22. (a)(1) On or before May 1 of each year beginning 
in 1984, the Railroad Retirement Board shall prepare a five-
year projection of anticipated revenues to and payments from 
the Railroad Retirement Account to determine the ability of 
such Account to pay benefits in each of the next succeeding 
five calendar years. On or before May 1 of each year beginning 
in 2003, the Railroad Retirement Board shall compute its 
projection of the account benefits ratio and the average 
account benefits ratio (as defined by section 3241(c) of the 
Internal Revenue Code of 1986) for each of the next succeeding 
five fiscal years. No later than July 1 of each year, the Board 
shall submit a written report to the President, the Speaker of 
the House, and the President of the Senate setting forth the 
results of [the projection prepared pursuant to the preceding 
sentence] the projections prepared pursuant to the preceding 
two sentences. If the projection indicates that the funds in 
the Railroad Retirement Account will be insufficient to pay the 
full amount of the benefits under this Act which are payable 
from that Account at any time during the five-year period, the 
Board's report shall include--
          (A)  * * *

           *       *       *       *       *       *       *



        computation and certification of account benefit ratios


  Sec. 23. (a) Initial Computation and Certification.--On or 
before November 1, 2003, the Railroad Retirement Board shall--
          (1) compute the account benefits ratios for each of 
        the most recent 10 preceding fiscal years, and
          (2) certify the account benefits ratios for each such 
        fiscal year to the Secretary of the Treasury.
  (b) Computations and Certifications After 2003.--On or before 
November 1 of each year after 2003, the Railroad Retirement 
Board shall--
          (1) compute the account benefits ratio for the fiscal 
        year ending in such year, and
          (2) certify the account benefits ratio for such 
        fiscal year to the Secretary of the Treasury.
  (c) Definition.--As used in this section, the term ``account 
benefits ratio'' has the meaning given that term in section 
3241(c) of the Internal Revenue Code of 1986.
                              ----------                              


                 SECTION 205 OF THE SOCIAL SECURITY ACT

           evidence, procedure, and certification for payment

    Sec. 205. (a)  * * *

           *       *       *       *       *       *       *

  (i) Upon final decision of the Commissioner of Social 
Security, or upon final judgment of any court of competent 
jurisdiction, that any person is entitled to any payment or 
payments under this title, the Commissioner of Social Security 
shall certify to the Managing Trustee the name and address of 
the person so entitled to receive such payment or payments, the 
amount of such payment or payments, and the time at which such 
payment or payments should be made, and the Managing Trustee, 
through the Fiscal Service of the Department of the Treasury, 
and prior to any action thereon by the General Accounting 
Office, shall make payment in accordance with the certification 
of the Commissioner of Social Security (except that in the case 
of (A) an individual who will have completed ten years of 
service (or five or more years of service, all of which accrues 
after December 31, 1995) creditable under the Railroad 
Retirement Act of 1937 or the Railroad Retirement Act of 1974, 
(B) the wife or husband of such an individual, (C) any survivor 
of such an individual if such survivor is entitled, or could 
upon application become entitled, to an annuity under section 2 
of the Railroad Retirement Act of 1974, and (D) any other 
person entitled to benefits under section 202 of this Act on 
the basis of the wages and self-employment income of such an 
individual (except a survivor of such an individual where such 
individual did not have a current connection with the railroad 
industry, as defined in the Railroad Retirement Act of 1974, at 
the time of his death), such certification shall be made to the 
Railroad Retirement Board which shall provide for such payment 
or payments to such person on behalf of the Managing Trustee in 
accordance with the provisions of the Railroad Retirement Act 
of 1974): Provided, That where a review of the Commissioner's 
decision is or may be sought under subsection (g) the 
Commissioner of Social Security may withhold certification of 
payment pending such review. The Managing Trustee shall not be 
held personally liable for any payment or payments made in 
accordance with a certification by the Commissioner of Social 
Security.

           *       *       *       *       *       *       *

                              ----------                              


                     INTERNAL REVENUE CODE OF 1986

                        Subtitle A--Income Taxes

           *       *       *       *       *       *       *


                 CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


             Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


                     PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *


               Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

  (a)  * * *

           *       *       *       *       *       *       *

  (d) Additional Credit for Families With 3 or More Children.--
          (1)  * * *

           *       *       *       *       *       *       *

          (3) Social security taxes.--For purposes of paragraph 
        (1)--
                  (A) In general.--The term ``social security 
                taxes'' means, with respect to any taxpayer for 
                any taxable year--
                          (i)  * * *

           *       *       *       *       *       *       *

                          (iii) 50 percent of the taxes imposed 
                        by [section 3211(a)(1)] section 3211(a) 
                        on amounts received by the taxpayer 
                        during the calendar year in which the 
                        taxable year begins.

           *       *       *       *       *       *       *


             Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


         PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE 
                    CONTRACTS.

  (a)  * * *

           *       *       *       *       *       *       *

  (r) Certain Railroad Retirement Benefits Treated as Received 
Under Employer Plans.--
          (1)  * * *
          (2) Tier 2 taxes treated as contributions.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (B) Tier 2 portion.--For purposes of 
                subparagraph (A)--
                          (i) After 1984.--With respect to 
                        compensation paid after 1984, the tier 
                        2 portion shall be the taxes imposed by 
                        sections 3201(b), [3211(a)(2)] 3211(b), 
                        and 3221(b).

           *       *       *       *       *       *       *


                  Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *


                         PART I--GENERAL RULE

           *       *       *       *       *       *       *


SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a)  * * *

           *       *       *       *       *       *       *

  (c) List of Exempt Organizations.--The following 
organizations are referred to in subsection (a):
          (1)  * * *

           *       *       *       *       *       *       *

          (28) The Railroad Retirement Investment Trust 
        established under section 15(j) of the Railroad 
        Retirement Act of 1974.

           *       *       *       *       *       *       *


                     Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


                CHAPTER 22--RAILROAD RETIREMENT TAX ACT

           *       *       *       *       *       *       *


        Subchapter E. Tier 2 tax rate determination.
     * * * * * * *

                    Subchapter A--Tax on Employees

           *       *       *       *       *       *       *


SEC. 3201. RATE OF TAX.

  (a)  * * *
  [(b) Tier 2 Tax.--In addition to other taxes, there is hereby 
imposed on the income of each employee a tax equal to 4.90 
percent of the compensation received during any calendar year 
by such employee for services rendered by such employee.]
  (b) Tier 2 Tax.--
          (1) In general.--In addition to other taxes, there is 
        hereby imposed on the income of each employee a tax 
        equal to the applicable percentage of the compensation 
        received during any calendar year by such employee for 
        services rendered by such employee.
          (2) Applicable percentage.--For purposes of paragraph 
        (1), the term ``applicable percentage'' means--
                  (A) 4.90 percent in the case of compensation 
                received during 2002 or 2003, and
                  (B) in the case of compensation received 
                during any calendar year after 2003, the 
                percentage determined under section 3241 for 
                such calendar year.

           *       *       *       *       *       *       *


              Subchapter B--Tax on Employee Representatives

           *       *       *       *       *       *       *


SEC. 3211. RATE OF TAX.

  [(a) Imposition of Taxes.--
          [(1) Tier 1 tax.--In addition to other taxes, there 
        is hereby imposed on the income of each employee 
        representative a tax equal to the applicable percentage 
        of the compensation received during any calendar year 
        by such employee representative for services rendered 
        by such employee representative. For purposes of the 
        preceding sentence, the term ``applicable percentage'' 
        means the percentage equal to the sum of the rates of 
        tax in effect under subsections (a) and (b) of section 
        3101 and subsections (a) and (b) of section 3111 for 
        the calendar year.
          [(2) Tier 2 tax.--In addition to other taxes, there 
        is hereby imposed on the income of each employee 
        representative a tax equal to the following percentage 
        of the compensation received during any calendar year 
        by such employee representatives for services rendered 
        by such employee representative:

    [In the case of compensation                                        
      received during:                                The rate shall be:
      1985....................................................     13.75
      1986 or thereafter......................................     14.75

          [(3) Cross reference.--

          [For application of different contribution bases with respect 
        to the taxes imposed by paragraphs (1) and (2), see section 
        3231(e)(2).
  [(b) In addition to other taxes, there is hereby imposed on 
the income of each employee representative a tax at a rate 
equal to the rate of excise tax imposed on every employer, 
provided for in section 3221(c), for each man-hour for which 
compensation is paid to him for services rendered as an 
employee representative.]
  (a) Tier 1 Tax.--In addition to other taxes, there is hereby 
imposed on the income of each employee representative a tax 
equal to the applicable percentage of the compensation received 
during any calendar year by such employee representative for 
services rendered by such employee representative. For purposes 
of the preceding sentence, the term ``applicable percentage'' 
means the percentage equal to the sum of the rates of tax in 
effect under subsections (a) and (b) of section 3101 and 
subsections (a) and (b) of section 3111 for the calendar year.
  (b) Tier 2 Tax.--
          (1) In general.--In addition to other taxes, there is 
        hereby imposed on the income of each employee 
        representative a tax equal to the applicable percentage 
        of the compensation received during any calendar year 
        by such employee representatives for services rendered 
        by such employee representative.
          (2) Applicable percentage.--For purposes of paragraph 
        (1), the term ``applicable percentage'' means--
                  (A) 14.75 percent in the case of compensation 
                received during 2002,
                  (B) 14.20 percent in the case of compensation 
                received during 2003, and
                  (C) in the case of compensation received 
                during any calendar year after 2003, the 
                percentage determined under section 3241 for 
                such calendar year.
  (c) Cross Reference.--

          For application of different contribution bases with respect 
        to the taxes imposed by subsections (a) and (b), see section 
        3231(e)(2).

           *       *       *       *       *       *       *


                     Subchapter C--Tax on Employers

           *       *       *       *       *       *       *


SEC. 3221. RATE OF TAX.

  (a)  * * *
  [(b) Tier 2 Tax.--In addition to other taxes, there is hereby 
imposed on every employer an excise tax, with respect to having 
individuals in his employ, equal to 16.10 percent of the 
compensation paid during any calendar year by such employer for 
services rendered to such employer.
  [(c) In addition to other taxes, there is hereby imposed on 
every employer an excise tax, with respect to having 
individuals in his employ, for each man-hour for which 
compensation is paid by such employer for services rendered to 
him during any calendar quarter, at such rate as will make 
available sufficient funds to meet the obligation to pay 
supplemental annuities at the level provided under section 3(j) 
of the Railroad Retirement Act of 1937 as in effect on December 
31, 1974 and administrative expenses in connection therewith. 
For the purpose of this subsection, the Railroad Retirement 
Board is directed to determine what rate is required for each 
calendar quarter. The Railroad Retirement Board shall make the 
determinations provided for not later than fifteen days before 
each calendar quarter. As soon as practicable after each 
determination of the rate, as provided in this subsection, the 
Railroad Retirement Board shall publish a notice in the Federal 
Register, and shall advise all employers, employee 
representatives, and the Secretary, of the rate so determined. 
With respect to daily, weekly, or monthly rates of compensation 
such tax shall apply to the number of hours comprehended in the 
rate together with the number of overtime hours for which 
compensation in addition to the daily, weekly, or monthly rate 
is paid. With respect to compensation paid on a mileage or 
piecework basis such tax shall apply to the number of hours 
constituting the hourly equivalent of the compensation paid. 
Each employer of employees whose supplemental annuities are 
reduced pursuant to section 3(j)(2) of the Railroad Retirement 
Act of 1937 or section 2(h)(2) of the Railroad Retirement Act 
of 1974 shall be allowed as a credit against the tax imposed by 
this subsection an amount equivalent in each month to the 
aggregate amount of reductions in supplemental annuities 
accruing in such month to employees of such employer. If the 
credit so allowed to such an employer for any month exceeds the 
tax liability of such employer accruing under this subsection 
in such month, the excess may be carried forward for credit 
against such taxes accruing in subsequent months but the total 
credit allowed by this paragraph to an employer shall not 
exceed the total of the taxes on such employer imposed by this 
subsection. At the end of each calendar quarter the Railroad 
Retirement Board shall certify to the Secretary with respect to 
each such employer the amount of credit accruing to such 
employer under this paragraph during such quarter and shall 
notify such employer as to the amount so certified.
  [(d) Notwithstanding the provisions of subsection (c) of this 
section, the tax imposed by such subsection (c) shall not apply 
to an employer with respect to employees who are covered by a 
supplemental pension plan which is established pursuant to an 
agreement reached through collective bargaining between the 
employer and employees. There is hereby imposed on every such 
employer an excise tax equal to the amount of the supplemental 
annuity paid to each such employee under section 2(b) of the 
Railroad Retirement Act of 1974, plus a percentage thereof 
determined by the Railroad Retirement Board to be sufficient to 
cover the administrative costs attributable to such payments 
under section 2(b) of such Act.]
  (b) Tier 2 Tax.--
          (1) In general.--In addition to other taxes, there is 
        hereby imposed on every employer an excise tax, with 
        respect to having individuals in his employ, equal to 
        the applicable percentage of the compensation paid 
        during any calendar year by such employer for services 
        rendered to such employer.
          (2) Applicable percentage.--For purposes of paragraph 
        (1), the term ``applicable percentage'' means--
                  (A) 15.6 percent in the case of compensation 
                paid during 2002,
                  (B) 14.2 percent in the case of compensation 
                paid during 2003, and
                  (C) in the case of compensation paid during 
                any calendar year after 2003, the percentage 
                determined under section 3241 for such calendar 
                year.
  [(e)] (c) Cross Reference.--

          For application of different contribution bases with respect 
        to the taxes imposed by subsections (a) and (b), see section 
        3231(e)(2).

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                    Subchapter D--General Provisions

           *       *       *       *       *       *       *


SEC. 3231. DEFINITIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Compensation.--For purposes of this chapter--
          (1) * * *
          (2) Application of contribution bases.--
                  (A) Compensation in excess of applicable base 
                excluded.--
                          (i)  * * *

           *       *       *       *       *       *       *

                          (iii) Hospital insurance taxes.--
                        Clause (i) shall not apply to--
                                  (I) * * *
                                  (II) so much of the rate 
                                applicable under section 
                                [3211(a)(1)] 3211(a) as does 
                                not exceed the rate of tax in 
                                effect under section 1401(b).

           *       *       *       *       *       *       *

                  (B) Applicable Base.--
                          (i) * * *
                          (ii) Tier 2 taxes, etc.--For purposes 
                        of--
                                  (I) the taxes imposed by 
                                sections 3201(b), [3211(a)(2)] 
                                3211(b), and 3221(b), and

           *       *       *       *       *       *       *

          (4)(A) For purposes of applying sections 3201(a), 
        [3211(a)(1)] 3211(a), and 3221(a), in the case of 
        payments made to an employee or any of his dependents 
        on account of sickness or accident disability, clause 
        (i) of the second sentence of paragraph (1) shall 
        exclude from the term ``compensation'' only--
                  (i) payments which are received under a 
                workmen's compensation law, and
                  (ii) benefits received under the Railroad 
                Retirement Act of 1974.

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              Subchapter E--Tier 2 Tax Rate Determination

        Sec. 3241. Determination of tier 2 tax rate based on average 
                  account benefits ratio.

SEC. 3241. DETERMINATION OF TIER 2 TAX RATE BASED ON AVERAGE ACCOUNT 
                    BENEFITS RATIO.

  (a) In General.--For purposes of sections 3201(b), 3211(b), 
and 3221(b), the applicable percentage for any calendar year is 
the percentage determined in accordance with the table in 
subsection (b).
  (b) Tax Rate Schedule.--


------------------------------------------------------------------------
  Average account benefits ratio        Applicable
-----------------------------------   percentage for       Applicable
                                     sections 3211(b)    percentage for
    At least        But less than      and 3221(b)      section 3201(b)
------------------------------------------------------------------------
                            2.5                22.1                4.9
          2.5               3.0                18.1                4.9
          3.0               3.5                15.1                4.9
          3.5               4.0                14.1                4.9
          4.0               6.1                13.1                4.9
          6.1               6.5                12.6                4.4
          6.5               7.0                12.1                3.9
          7.0               7.5                11.6                3.4
          7.5               8.0                11.1                2.9
          8.0               8.5                10.1                1.9
          8.5               9.0                 9.1                0.9
          9.0                                   8.2                  0
------------------------------------------------------------------------

  (c) Definitions Related to Determination of Rates of Tax.--
          (1) Average account benefits ratio.--For purposes of 
        this section, the term ``average account benefits 
        ratio'' means, with respect to any calendar year, the 
        average determined by the Secretary of the account 
        benefits ratios for the 10 most recent fiscal years 
        ending before such calendar year. If the amount 
        determined under the preceding sentence is not a 
        multiple of 0.1, such amount shall be increased to the 
        next highest multiple of 0.1.
          (2) Account benefits ratio.--For purposes of this 
        section, the term ``account benefits ratio'' means, 
        with respect to any fiscal year, the amount determined 
        by the Railroad Retirement Board by dividing the fair 
        market value of the assets in the Railroad Retirement 
        Account and of the Railroad Retirement Investment Trust 
        (and for years before 2002, the Social Security 
        Equivalent Benefits Account) as of the close of such 
        fiscal year by the total benefits and administrative 
        expenses paid from the Railroad Retirement Account and 
        the Railroad Retirement Investment Trust during such 
        fiscal year.
  (d) Notice.--No later than December 1 of each calendar year, 
the Secretary shall publish a notice in the Federal Register of 
the rates of tax determined under this section which are 
applicable for the following calendar year.

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