Editorial: Retire this railroad retirement relic
Before a vast LIRR cheating scandal jolted the federal railroad disability pension program in 2008, nine in 10 applicants were routinely approved.
Six years after revelations of the fraud conspiracy that could have cost the program $1 billion if undetected, that outlandish approval rate is unchanged. That's intolerable.
A recent audit by the federal Government Accountability Office found that the Railroad Retirement Board's policies and procedures still don't adequately ensure claimants meet eligibility requirements. The board was also slammed by its inspector general in February for its continued inability to effect meaningful change. So here's a simple suggestion to get real change:
Congress should abolish the board.
This separate public retirement program that covers 259,000 rail workers nationally should be folded into Social Security, which covers 165 million workers. The dedicated railroad program may have made sense at one time. Not anymore, particularly for LIRR workers who also have a company pension plan.
President Franklin Delano Roosevelt signed the Railroad Retirement Act in 1935. The rail industry had the country's first industrial pension plans dating to 1874 and by 1925 three in four railroad workers were covered. But during the Great Depression, the plans had problems meeting their obligations.
The federal program was created to address that problem. It administers retirement, survivor and disability benefits, as does Social Security, which was enacted the same year. The retirement board also handles Medicare and unemployment compensation for rail workers.
The separate systems were created because at its inception Social Security didn't credit past work, and was not scheduled to begin paying monthly benefits until 1940. Neither of those concerns is relevant today. And the railroad program is more costly for employers, including the LIRR and its riders and state taxpayers who ultimately foot the bills.
Social Security provides disability benefits only to people who are totally disabled. To qualify, workers must have a physical or mental impairment expected to last at least a year that prevents them from engaging in any substantial gainful activity. Fewer than half of the people who apply are approved for benefits that in 2012 averaged $1,134 a month for 10 million beneficiaries.
The railroad program provides benefits for the totally disabled based on the same criteria as Social Security. But it's more generous. In 2012, 20,800 people collected benefits that averaged $1,596 a month. And 977 of 1,254 applicants were approved that year, a 77.9 percent rate.
In addition, the railroad program offers an "occupational disability" benefit for people unable to perform the duties of their railroad job -- even if they could do some other work. That's the program that was abused in the LIRR scandal. In 2012, it paid 61,700 people an average monthly benefit of $2,580. And the Railroad Retirement Board approved 496 of the 519 occupational disability applications from LIRR workers that the GAO reviewed in March 2013.
Employers and employees each pay the same 7.65 percent on the first $117,000 of salary as participants and employers do for Social Security and Medicare. But the railroad program collects an additional 4.4 percent from employees and 12.6 percent from employers such as the LIRR on the first $87,000 of pay.
The LIRR's bill for the federal retirement program in 2013 was $110.9 million. If its workers were in Social Security instead, the tab would have been $48.5 million, according to the MTA.
There's little reason to maintain a Social Security substitute for so few workers.
This railroad gravy train should be taken out of service.