Gramm Nickles Rebuttal

RESPONSE TO SENATOR GRAMM’S (MIS)-STATEMENTS

        Claim.  Senator Gramm claims that rail employers and employees would "pilfer" $15 billion from Railroad Retirement under this bill.

Fact.   Senator Gramm would have us believe that rail workers and employers are "pilfering."  Yet, as Senator Gramm himself concedes, the assets of the Railroad Retirement system are the pension contributions of these very workers and employers, who together pay a  21 percent payroll tax, and the earnings on those contributions.  The truth is that by allowing investment of these assets in private markets, more than adequate reserves can be maintained while making modest benefit improvements and reducing the punishing payroll tax burden on this industry.  In fact, the Railroad Retirement actuary has found that the system is solvent for the next 75 years under this bill.

        Claim.   By lowering the retirement age for Railroad Retirement to age 60, the bill gives railroad workers a benefit no one else has, and that this benefit conflicts with the increase in the Social Security eligibility age.

Fact.   First, the earlier retirement age applies only to workers who have 30 years of service in the rail industry.  Second, the normal retirement age for Tier 1, the Social Security counterpart of Railroad Retirement, is not affected by this bill.  It will rise to age 67 just as the Social Security retirement age will.  Third, paying the cost of  Social Security for early retirees until they reach normal Social Security retirement age is a feature of many private sector pension plans.  These are known as "bridge" plans.  Like these plans, the private portion of Railroad Retirement (Tier 2) pays the entire cost of this early retirement option, just as it currently does for workers with 30 years of service at age 62.

        Claim.   The Railroad retirement system will run out of money and the federal government will have to make up the shortfall.

Fact.   The Railroad Retirement actuary has reviewed this bill and found that under it, as under current law, the system is solvent over the next 75 years.  Senator Gramm offers no evidence that this analysis is wrong, he simply declares that the assumptions are "very optimistic."  In fact, the assumptions were found reasonable by the CBO which used them in its cost estimates, as well as the actuary.  Senator Gramm cites past instances of financial difficulties, but fails to mention that the bill provides for the first time an automatic tax schedule that will raise taxes on rail employers if pension fund reserves drop below four years of benefits.  This will require no action by Congress.  Finally, in the past, when financial problems have arisen, Congress has shown far more inclination to raise taxes and reduce benefits than to provide bailouts.  Thus, even if Senator Gramm’s doomsday scenario comes true, it is the plan participants who are likely to pay, not the federal government.

        Claim.   Three things in the bill need to be fixed if the Senate considers the bill.

Fact.   Of the three issues Senator Gramm identifies, one has been addressed and the others never have been problems.

First, Senator Gramm calls for a "firewall" between those responsible for investments and the government.  This has already been created.  In this bill, none of the directors of the investment trust created under the bill are appointed by government officials; all are selected by and from the private sector.  

Second,  Senator Gramm calls for improving benefits and reducing taxes only to the extent investment returns are not needed to pay benefits.  This is exactly how the system works under this bill. In fact, for the first time, a specified level of reserves is established that must be maintained and which is automatically maintained through the tax trigger mechanism.

Third, Senator Gramm would eliminate the reduction in early retirement age for workers with 30 years of service on the grounds that the Social Security retirement age is being raised.  The Senator fails to comprehend that eligibility for the Social Security look-alike portion of Railroad Retirement (Tier 1) will rise in lock-step with Social Security and that no railroad retiree will be eligible to receive benefits from this part of Railroad Retirement a minute before a person of the same age is eligible to receive benefits from the Social Security trust fund.  As under current law, the private portion of Railroad Retirement to provides a benefit equivalent to Tier 1until such time as the Tier 1 eligibility age is reached, but lowers the age of eligibility for this benefit from 62 to 60 for those with 30 years of service.

WHERE SENATOR NICKLES IS WRONG ON THE RAILROAD RETIREMENT BILL

             Senator Nickles continues to express his strong opposition to the Railroad Retirement and Survivors’ Improvement Act.  His opposition, however, is based on bad information.  Here is where Senator Nickles has his facts wrong:

 Nickles Statement:

This bill had no input by the Finance Committee, not one member of the Finance Committee has had any input on this bill.

 Truth:

This bill is sponsored by the Chairman of the Finance Committee, Max Baucus, and a Subcommittee Ranking Member, Orrin Hatch, and cosponsored by 11 other members of the Committee.  The bill was considered by the Finance Committee on September 28, 2000.  More than 20 amendments were presented.  The Committee voted on eight amendments, and voted to report the bill.  All members of the Committee have had the opportunity to provide input into the crafting of the bill.

Nickles Statement:

Uncle Sam is still liable.

Truth:

Railroad employers under the bill assume a responsibility for maintaining the financial well-being of the Railroad Retirement system that they do not have under current law.  In addition, the bill will improves the long-term fiscal solvency of Railroad Retirement.  The Railroad Retirement Board Actuary has projected that, under the bill, the system will be solvent for the next 75 years and beyond.  Any shortfall in funding, although not expected, would be paid for under the bill by railroad employers.

Nickles Statement:

Uncle Sam’s … subsidized this system … to the tune of $90 billion since the 1930s.

Truth:

Railroad Retirement has received no such subsidy.  There is simply no basis for this $90 billion figure.  Aside from other factors, Senator Nickles completely ignores in his calculation the investment earnings received by Railroad Retirement since the 1930s.  The reality is that funding for Railroad Retirement Tier 2 has come only from taxes on railroad employers and Railroad Retirement participants, and investment earnings on these tax dollars.  The current surplus balance in the Railroad Retirement trust fund of more than $18 billion exists because these combined sources of funding made over the years have exceeded benefit payments by that amount.

Nickles Statement:

Tier 1 benefits are supposedly the equivalent to Social Security.  But [the] retirement age …  is 62 and they take it to 60.  Yet we tell all of our constituents that your retirement age is 65 right now, going to 67.

Truth:

The Tier 1 retirement age is 65, going to 67, just like Social Security.  Under Railroad Retirement, Tier 2, the private pension equivalent portion, pays for early retirement benefits (Tier 1 and Tier 2) for workers with 30 or more years of service.  Tier 2 pays for early retirement for these long-term workers (currently 62, lowered to 60 under the bill), just like many private pension plans offer "bridge plans" to allow workers to receive Social Security equivalent payments in early retirement.  Railroad employers and employees alone pay for this benefit through their Tier 2 taxes.

Nickles Statement:

            [The Railroads] are asking [the Government] to pay for [this bill].

Truth:

The Government incurs no additional liability under this bill.  In short, this bill allows for the investment return on the Railroad Retirement to be increased, and these increased earnings allow for Railroad Retirement taxes to reduced, and for benefits to be enhanced.  Railroad employers, and Railroad Retirement participants continue to pay for the entirety of the Railroad Retirement program.