Railroads receive congressional support in quest to overhaul retirement system

By: Daniel Machalaba
The Wall Street Journal, November 30, 2001


Major railroads cleared a hurdle in Congress for their plan to overhaul the decades-old railroad retirement system and, in the process, produce substantial savings for the industry.

The Senate voted 96-4 to take up the measure. A similar bill passed overwhelmingly in the House of Representatives in August.

The overhaul would take the railroad retirement system, which invests in government securities in the same manner as Social Security, and permit some of the funds to be invested in private securities such as stocks and bonds. Railroads and rail unions expect higher returns on the invested money, thereby permitting improved benefits for employees and reduced taxes for the railroad companies. The railroad retirement system has about 675,000 beneficiaries and 250,000 active employees.

The bill now faces a floor vote and possible amendments in the Senate. Some Republican senators remain strongly opposed to the legislation, which they portray as a sweetheart deal for railroads and their unions that could leave taxpayers holding the bag.

"We have a bill that was written by special-interest groups, by railroad companies and unions, and they negotiated a deal and said, 'Great, now let's have the American taxpayer pay for it,' " said Sen. Don Nickles (R., Okla.). "If there's ever special-interest legislation, this is it."

Rail labor said the measure would increase benefits for employees, cut to five years from 10 years the time for employees to become vested in the system and allow employees to retire at age 60 instead of 62 with full benefits. "It's something we've wanted for years," said James Brukenhoefer, national legislative director for the United Transportation Union, which represents about 70,000 railroad employees.

Railroads said the measure would lower payroll taxes for freight railroads, Amtrak and some commuter railroads by about $400 million a year once the new system is fully phased in. "That's money we could use for growing the business," said Jim Hixon, senior vice president of administration for Norfolk Southern Corp., a Norfolk, Va., railroad company.

Railroads said the payroll-tax savings would help them boost returns on invested capital, which are still inadequate, and prepare for freight growth.

"The freight railroad industry is the most capital intensive in the country, and lowering costs by having a more efficient retirement system will help us continue to meet those needs," said Edward Hamberger, president of the Association of American Railroads, a trade group in Washington, D.C