Reforming the Railroad Retirement System

Steven A. Sass

WP#2013-13

Abstract

The government’s Railroad Retirement program is a clear anomaly in the U.S. economic landscape.  The program taxes employers and workers in a specific private-sector industry to provide pensions to workers in that industry.  Like Social Security, Railroad Retirement had been funded on a pay-as-you-go basis, with Trust Fund assets invested in government bonds.  In the 1990s, however, the carriers and unions developed a proposal for reforming the program that involved investing Railroad Retirement assets in equities, similar to private-sector pension funds.  Despite opposition in Washington from those who feared it would create a precedent for investing Social Security assets in equities, Congress enacted the industry proposal in 2001.