The Railroad Retirement Act of 1937 (“RRA”) established a retirement plan for eligible railroad workers based on their years of creditable service and earnings. Although the plan benefits consist of several parts, such as tier I, tier II, vested dual benefits, and supplemental annuities, this blog will provide an overview of the main components of the RRA plan.
Background
The three primary components of railroad plans administered by the U.S. Railroad Retirement Board (“RRB”) are tier I, tier II, and disability benefits. Tier I benefits are similar to the social security benefits received by non-railroad workers. These benefits are comprised of both railroad earnings and earnings from any employment covered by the Social Security Act (“SSA”). Tier I benefits are not divisible in a divorce action. 45 U.S.C. § 231m(a). If you attempt to partition tier I benefits, the RRB will ignore this portion of the order. However, tier I benefits may be utilized for calculating alimony and child support.
Tier II benefits are similar to traditional defined benefit plans and are partitionable by court order. However, unlike pension plans, tier II benefits are only available under a shared interest approach. This means a former spouse will become eligible to receive their portion of benefits once the employee becomes or would have become eligible to receive benefits. Like pension plans, tier II benefits can be valued and partitioned using either a fixed-dollar, percentage, or fraction method (for more on these valuation methods, see our post Dividing a Defined Benefit Plan During Divorce). In a fixed-dollar arrangement, this is the amount the former spouse will receive, and no post-retirement adjustments will be made. 20 C.F.R. § 295.4(b)(ii). If a percentage or fraction is used to value the annuity, the former spouse will receive a portion of any cost-of-living or other post-retirement adjustments. An exception to this rule applies when the percentage is used as of a stated date. In this scenario, the percentage amount will convert to a fixed-dollar award.
Disability annuities may be partitioned by court order unless the order expressly states the annuity cannot be partitioned. An employee may receive a disability annuity when they experience either a total or occupational disability. A total disability occurs when the employee’s physical or mental state prevents any regular employment. An occupational disability occurs when the employee experiences a condition that prohibits them from engaging in their regular railroad occupation, and the condition is expected to last for twelve months or longer. Disability annuities convert to age and service annuities when the employee reaches full retirement age. If the original court order prohibits the partition of a disability annuity, the RRB will apply the order to the employee’s age and service annuity once the disability annuity converts unless this action is also expressly barred in the order.
Eligibility for an RRA annuity
A railroad employee becomes eligible to receive an RRA annuity if they have completed at least ten years (120 months) of creditable service or five years (60 months) of creditable service after December 31, 1995. 45 U.S.C. 231a(a)(1). These months of service do not need to be consecutive for the employee to be eligible for an annuity. An individual will begin receiving their annuity in the first full month they reach age sixty and have completed thirty years of creditable service. 45 U.S.C. 231a(a)(1)(ii). If an employee has only completed 10-29 years of creditable service, or five years after 1995, they will begin receiving their annuity in the first full month they reach age 62. 45 U.S.C. 231a(a)(1)(iii). However, individuals who do not have at least thirty years of service and begin receiving an annuity at 62 will have an early retirement reduction applied to their payments until they reach full retirement age. Id.
Partitioning the Annuity
To divide an RRA annuity, you will need to refer to the division as a partition award. A partition award is a specified payment of a portion of the railroad employee’s divisible annuity components, which reduces the amount paid to the employee.
A court order granting a partition award must be a final decree that provides for the division of property and is issued by a court in accordance with the laws of the jurisdiction of that court and which provides for the division of property. 20 C.F.R. § 295.2. The certified copy of the decree must:
- provide the spouse or former spouse is awarded payments from railroad retirement annuities payable to the railroad employee;
- specify an amount to be paid to the spouse or former spouse;
- obligate the RRB to make payments directly to the spouse or former spouse;
- clearly identify both the employee and the spouse or former spouse to whom payments are to be made.
20 C.F.R. § 295.3(a). Furthermore, the order or supplemental documentation must identify both the employee’s and spouse's or former spouse’s social security number, full name, and current address. 20 C.F.R. §§ 295.3(c)(1)-(3).
Two forms, an agreement of spouse or former spouse and direct deposit signup, must also be submitted to the RRB in addition to the partition order. If these forms are not submitted to the RRB within three months of receiving the partition order, the amounts withheld for the spouse or former spouse shall be paid to the railroad employee, and no arrearage will accrue to the spouse or former spouse. 20 C.F.R. § 295.4(d)(3).
Survivorship
Divorced spouse survivor annuities are applicable to tier I benefits and resemble benefits under the SSA. A divorced spouse must have been validly married to the employee for at least ten years immediately before the divorce became final. 20 C.F.R. §§ 404.336(a)(1)-(2). Further, the divorced spouse must:
- not work for a railroad employer;
- not be entitled to an old-age or disability benefit under the SSA based on a primary insurance amount that is equal to or greater than one-half of the employee's tier I primary insurance amount; and either
- have attained retirement age; or
- have attained age 62 but be under retirement age.
20 C.F.R. § 216.52. Again, tier I benefits are not partitionable, and this award does not impact any tier II annuity.
Tier II benefits have limited survivorship options. If the employee dies, payments may continue to the spouse or former spouse until their death unless an earlier termination date is stated in the partition order. The spouse or former spouse may also be eligible for a surviving divorced spouse annuity as stated above. However, if the spouse or former spouse predeceases the employee, their partition award will revert to the employee and will not be included in the spouse or former spouse’s estate.
Miscellaneous
The RRB will conduct preliminary reviews of proposed orders, unlike many federal retirement systems. Therefore, it is recommended to submit your draft order to the RRB for review, comment, and preapproval before filing it with a court for a judge’s signature.
Lastly, thus far, we have discussed benefits under the RRA. However, many railroad workers also receive retirement benefits from their individual, private employers in addition to the RRA retirement plan. The RRB does not administer these private-sector retirement benefits. Therefore, it is advisable to make an inquiry during discovery to determine whether there are any private railroad retirement plans available for division in your case.
Sources:
U.S. Railroad Retirement Board, Attorney’s Guide to the Partition of Railroad Retirement Annuities (2011).
U.S. Railroad Retirement Board, Railroad Retirement Handbook (2018).
U.S. Railroad Retirement Board, Railroad Retirement and Survivor Benefits (2020).