12-7-04

Tier II Tax Rate to Drop

12-7-04 – It’s now official. Railroad employees and employers will each get a ½% tax cut on their Railroad Retirement Tier II tax rate effective January 1, 2005.

The tax cut is triggered by the provision of the Railroad Retirement and Survivors’ Improvement Act of 2001 which ties tax rates to fund balances at the end of each fiscal year. The National Railroad Retirement Investment Trust (NRRIT) reported a closing balance on September 30, 2004 of $26.4 billion, up from $24.2 billion at the end of the previous fiscal year and from $20.7 billion when the Trust was established on February 1, 2002. The $26.4 billion represents a 13.3% rate of return for the year on the assets invested by the Trust.

As a result, the ten year Average Benefit Ratio exceeded six years funding, triggering the ½% tax cut. Effective January 1, 2005, the Tier II tax rate for employees will drop from 4.9% to 4.4%, and the Tier II tax rate for employers will drop from 13.1% to 12.6%.

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