[Federal Register Volume 62, Number 233 (Thursday, December 4, 1997)]
[Proposed Rules]
[Pages 64188-64190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31725]
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RAILROAD RETIREMENT BOARD
20 CFR Part 211
RIN 3220-AB23
Creditable Railroad Compensation
AGENCY: Railroad Retirement Board.
ACTION: Proposed rule.
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SUMMARY: The Railroad Retirement Board hereby proposes to amend its
regulations to limit the crediting of pay for time lost to periods
prior to the judgment or agreement establishing that payment or in the
case of pay for time lost not attributable to a judgment or settlement,
prior to the date of payment.
DATES: Comments must be received on or before February 2, 1998.
ADDRESSES: Secretary to the Board, Railroad Retirement Board, 844 North
Rush Street, Chicago, Illinois 60611.
FOR FURTHER INFORMATION CONTACT: Thomas W. Sadler, Senior Attorney,
Railroad Retirement Board, 844 N. Rush Street, Chicago, Illinois 60611,
telephone 312-751-4513, TTD 312-751-4701.
SUPPLEMENTARY INFORMATION: Payments made for periods during which an
employee is absent from the active service of an employer are
considered to be ``pay for time lost'' and creditable compensation
under the Railroad Retirement Act. Pay for time lost includes pay
received due to an injury or due to loss of earnings attributable to
the employee being placed in a position paying less money. Employers
are required to allocate pay for time lost to the months in which the
time was actually lost. Pursuant to section 211.3 of the current
regulations, the Board will accept an allocation of pay for time lost
for periods after the judgment or settlement, and after the payment is
made. The practice has been costly to the railroad retirement system in
that taxes under the Railroad Retirement Tax Act are imposed on
railroad compensation at the time of payment up to the maximum taxable
amount for the year in which the payment is made. Accordingly, if a
personal injury suit is settled in 1997 and the railroad agrees to pay
the employee $300,000 to be allocated as pay for time lost over the
period 1997 through 2002 with $50,000 being designated to each year as
pay for time lost, the employee would receive six years of retirement
credit, but taxes would cover only one year of those additional
credits.
There is no requirement in the statute that pay for time lost be
creditable prospectively and, in the view of the majority of the Board,
to allow prospective crediting of pay for time lost cannot be justified
in view of the additional, potentially large costs to the system.
Section 1(h)(2) of the Railroad Retirement Act requires that pay
for time lost must be paid with respect to an identifiable period of
absence. This language, in the view of a majority of the Board,
suggests that pay for time lost should be credited only to a known
period of absence in the past. It is impossible to predict whether or
not an
[[Page 64189]]
employee will remain absent from work in the future as a result of
injury; accordingly, there is no truly identifiable period for
prospective crediting of pay for time lost. Moreover, to allow parties
to private litigation to pass on a portion of the costs of litigation
to a Federal benefit program simply makes no sense.
Based on its review of the statutory language and the legislative
history, a majority of the Board, Labor Member dissenting, proposes to
amend its regulations to prohibit crediting of pay for time lost beyond
the date of the judgment or settlement or, in the absence of a judgment
or settlement, beyond the date of payment. The proposed regulation
excepts from these restrictions the crediting of deemed service months
pursuant to section 3(i)(4) of the Railroad Retirement Act. That
section provides that an employee who has performed service for
compensation in less than twelve months of a calendar year, but has
received compensation in excess of the amount that may be credited to
the months of actual service, may have the excess credited to an
additional month or months in that same year.
The Labor Member has made a proposal that he believes resolves the
financial problem with the existing procedure by requiring that taxes
be paid in each of the years for which pay for time lost credit is
sought. While the majority appreciates the Labor Member's efforts in
attempting to resolve the problems with the current policy, the
majority does not believe that the payment of taxes will fully fund the
additional benefit payment and believes that the better approach would
be to scrap what it believes to be a bad policy rather than tinker with
it.
Employees who negotiate prospective pay for time lost credits do so
because without the additional credits they would not meet the service
requirement of 20 years for an occupational disability annuity.
Accordingly, without the prospective pay for time lost credits, no
benefits would be payable to these employees until they reach age 60 or
become totally and permanently disabled. Railroad retirement taxes paid
for several years of pay for time lost will not cover the additional
costs to the system of the occupational disability annuities that
otherwise would not have been paid. Moreover, under the regulations, a
month of pay for time lost credit may be granted based on an allocation
of compensation to the month of at least 10 times the employee's daily
wage rate. Accordingly, taxes would be payable on an allocation of as
little as fifty percent of the employee's normal monthly compensation,
but the employee would receive a full month credit for retirement
purposes. The Labor Member's proposal does nothing to address this
shortfall. The majority simply does not believe that it is appropriate
to use trust fund moneys to subsidize the costs of private litigation.
Finally, the majority views the Labor Member's proposal as, in
effect, allowing employees to purchase retirement credit. In the view
of the majority, this is simply bad policy.
Views of the Labor Member of the Board
Section 1(h) of the Railroad Retirement Act authorizes the
crediting of pay for time lost as compensation insofar as the employee
and his or her railroad employer agree to that crediting in connection
with an on-the-job injury. That provision thereby encourages the
settlement of disputes and permits the allocation of loss between
parties, in whatever way those parties themselves see fit and so
negotiate, see 211.3(b) of the Board regulation 20 CFR Sec. 211.3(b).
The majority, by limiting the employer's ability to provide for
future lost wages as the result of an on-the-job injury, as proposed in
this rule, interferes with an employer's and employee's ability to
settle Federal Employers' Liability Act (FELA) claims. This needless
intrusion into FELA disputes by the Board will only increase litigation
of disputes which could easily have been settled. It also prevents
personal injury settlements from achieving the goal of making injured
employees, as far as possible, whole.
The majority of the Board states that pay for time lost is being
credited prospectively, after the date of settlement or judgment (or,
in the absence of a settlement or judgment, after the date of payment),
without taxes under the Railroad Retirement Tax Act being paid for
those payments. This can be true where pay for time lost in the future
is compensated for by a lump sum payment at the time of settlement. The
Labor Member notes the majority says the current procedures are costly,
but never states what that cost is, as requested by OMB. Nevertheless,
the Labor Member has a proposal, explained below, that directly
addresses this concern.
The majority also suggests that the statute, by providing that pay
for time lost may only be credited to an identifiable period of lost
time, precludes prospective crediting of pay for time lost. This view
reads more into the statute than is actually there. The Labor Member
agrees with the majority that pay for time lost may be credited only to
an identifiable period of lost time. That, he notes, does not mean that
the statute precludes, in any way, the crediting of pay for time lost
to a period of lost time after the date of settlement where agreed to
by the parties. This was recognized by the Board as early as 1947 in an
opinion by the Board's General Counsel, L-47-146. Indeed, the cases
where pay for time lost is allocated into the future are generally
those where the employee is so badly injured that he or she will never
again be able to work in the railroad industry. The only way the
employee may be made whole in such cases is by paying the employee for
future lost wages and providing the retirement credits that would
accrue from such future lost wages. As noted above, the Labor Member
believes that the past policy of allowing the crediting of pay for time
lost into the future has facilitated out-of-court settlement of
disputes and has served the interests not only of employees, but also
of employers. Although it is the opinion of the Labor Member that the
past policy is good policy, he believes that the problem with
prospective crediting of pay for time lost noted by the majority can be
addressed by simply prohibiting pay for time lost in the future to be
paid in the form of a lump sum. The Labor Member proposes that
prospective crediting of pay for time lost be limited to periodic
payments made in the year or years for which the credit is sought and
where the employment taxes are paid with respect to those payments.
Such payments are in the nature of wage continuation payments or
dismissal payments which are clearly compensation under the Act, see 20
CFR 211.9.
For example, John Doe and ABC Railroad enter into a settlement
agreement in July 1996 pursuant to which John Doe retains an employment
relationship with ABC Railroad through 1998 and ABC Railroad agrees to
pay John Doe pay for time lost in the amount of $150,000 for the years
1996 ($50,000), 1997 ($50,000), and 1998 ($50,000). ABC issues a check
to John Doe in 1996 for $50,000, minus the employee tax under the
Railroad Retirement Tax Act, and pays the employer tax and the withheld
employee tax under the Railroad Retirement Tax Act. ABC Railroad makes
the same payments to John Doe on January 1, 1997 and January 1, 1998.
John Doe would, under the Labor Member's proposal, receive credit for
pay for time lost in 1996, 1997, and 1998. If ABC Railroad were to pay
the $150,000 in a lump sum in 1996, John Doe would receive credit only
in 1996. The payments in the
[[Page 64190]]
above example would be reported on the Employer's Annual Report of
Compensation required under 20 CFR 209.6 along with other wages paid to
other employees that year. Pay for time lost payments would be
indistinguishable from regular wages. The Labor Member believes that
his proposal would address the concern of the majority by fully funding
the prospective pay for time lost credits while continuing to allow
railroad employees and railroad employers to use pay for time lost
allocations in a positive way to resolve disputes.
With the modification he suggested, the Labor Member feels there is
no further justification in the majority's position on this regulation.
The majority has indicated that it is better to scrap a ``bad''
regulation rather than ``tinker'' with it. The Labor Member believes
that making employees who are injured in service to the rail industry
whole is not tinkering. It is a moral obligation.
The majority also believes that the Labor Member's proposal amounts
to allowing employees to purchase retirement credits. This is true. It
would be allowed, however, for only those employees who have
demonstrated through long years of service a career commitment to the
rail industry, and then, only when they have been severely injured or
otherwise incapacitated while performing rail service. Finally, it
would be further limited to only those in the foregoing category who
receive compensation from a settlement based on a conviction of both
the railroad and the employee that the railroad would probably be found
negligent in causing the employee's injury.
The majority points out that the additional tax paid for several
years of pay for time lost will not finance the additional benefits
which would be paid under the Labor Member's proposal. The Labor Member
believes that this is true but irrelevant. Completely aside from the
obligation to make injured employees whole, whatever the cost, is the
well established, clearly understood, and universally accepted feature
of social insurance programs that the contributions paid by a disabled
participant will rarely ever finance the actual benefits paid to such
individual. Covering the cost of such eventualities from contributions
of the remaining participants, including the negligent railroads, is
the purpose of an insurance program. Disability benefits would
virtually never be paid by any program under the condition laid down in
this regulation by the Board majority.
The majority notes that ten times the employee's daily rate of pay
is too low an amount for a month of compensation. The Labor Member
points out that an employee who is not injured need perform only one
hour of service to get a month of railroad retirement credit. However,
whenever low compensation months are used to obtain additional service,
the compensation average on which the annuity is based is depressed,
producing a lower benefit. In any event, the ten times daily pay rate
rule has been set by regulation by a previous Board after full and
careful review of the issue. The issue ought not be reopened now.
Finally, the Labor Member notes that the majority references
``employees who negotiate'' pay for time lost. This terminology clearly
acknowledges that, under current procedures, prospective credit can be
given only when the railroads have agreed to do so. Thus, the railroads
already control the use of this procedure through their right to simply
refuse to go along with prospective crediting. Therefore, there is no
need for the regulation change herein proposed by the Board majority.
The Office of Management and Budget has determined that this is a
significant regulatory action under Executive Order 12866. There are no
information collections associated with this rule.
List of Subjects in 20 CFR Part 211
Pensions, Railroad employees, Railroad retirement.
For the reasons set out in the preamble, chapter II of title 20 of
the Code of Federal Regulations is amended as follows:
PART 211--[AMENDED]
1. The authority citation for part 211 continues to read as
follows:
Authority: 45 U.S.C. 231(f).
2. Section 211.3 is amended by adding paragraph (c):
Sec. 211.3 Compensation paid for time lost.
* * * * *
(c)(1) Except as provided in paragraph (c)(2) of this section, pay
for time lost may not be credited to any period after the date of the
judgment or settlement agreement providing pay for time lost. If the
payment is not the result of a judgment or settlement, pay for time
lost may not, except as provided in paragraph (c)(2) of this section,
be credited to any period after the date of payment.
(2) Pay for time lost may be creditable as deemed service under
section 3(i)(4) of the Railroad Retirement Act in the year in which
either the judgment or settlement occurred or in the case of pay for
time lost not attributable to a judgment or settlement, in the year in
which the payment occurred.
Dated: November 21, 1997.
By Authority of the Board.
For the Board.
Beatrice Ezerski,
Secretary to the Board.
[FR Doc. 97-31725 Filed 12-3-97; 8:45 am]
BILLING CODE 7905-01-P
