When and how did the noncovered service pension reduction in employee annuities come about?
The noncovered service pension reduction in Railroad Retirement benefits was introduced by 1983 Social Security legislation, which also applied to the tier I benefits of Railroad Retirement employee annuities. Social Security and Railroad Retirement tier I benefits replace a percentage of a worker’s pre-retirement earnings. The formula used to compute benefits includes factors that ensure lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security or tier I benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent. Before 1983, such benefits for people who worked in jobs not covered by Railroad Retirement or Social Security were computed as if they were long-term, low-wage workers. They received the advantage of the higher percentage benefits in addition to their other pension. The modified formula eliminated this advantage. Question: In
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