The pension system keeping rail workers on the job amid the fight over sick days

The standoff between the railroad unions, their members, the White House and the railroads over sick days has brought new attention to the unique legal structure around railroad employment.

“The quality of the job has degraded to when hardly anyone wants to work here any more,” said a 20-year-plus railroad employee who did not want to be identified because of their union work. The retirement benefits, they said, is “the only reason I’m still here, and a lot of my co-workers feel the same way.”

Rail workers are in some ways caught between worlds. Rail unions were born in an earlier era of the labor market, in which employees devoted their entire careers to one job that came with generous defined retirement benefits like pensions, and the modern one, in which employees often change jobs frequently over the courses of their careers and employers offer 401(k) “matches” to employees to supplement Social Security benefits.

Working on the railroad all the livelong day

The reason railroads have their own unique collective bargaining structure is related to why they have their own pension system. The vital importance of railroads to the economy as a whole meant that railroad employees were in a strong position to bargain for themselves.

The railroad’s historical importance led to the development of private pension programs. By the 1930s, more than 80 percent of railroad workers were employed by companies that offered some form of pension plan.

That New Deal era saw the development of federal collective bargaining rules, and also enabled the development of a federal railroad workers’ retirement and pension system running parallel to Social Security. The pension system is administered by an independent agency called the Railroad Retirement Board.

Many railroad employees already had private pensions but “the benefits provided by these plans were generally inadequate, liable to capricious termination, and of little assistance to disabled employees,” according to a history of the program by Kevin Whitman. “When the Great Depression drove the already unstable railroad pension system into a state of crisis, the railroad industry was beset by retirees who needed immediate assistance.”

Working on the railroad just to pass the time away

Following changes to the system instituted in 1974, the system was changed to more closely model Social Security and combine it with the existing pension system.

Now, there are two tiers of benefits — literally Tier I and Tier II. The former is designed to mimic Social Security benefits and the latter is supposed to be more like a defined benefit pension.

Workers who have worked less than 30 years can use a formula that offers reduced benefits. Retirement benefits don’t kick in until age 60 at the earliest — even if railroad workers have hit their 30 years of service before then. This is still more generous than the typical retirement system, when the earliest Social Security retirement benefits kick in at age 62.

Can’t you hear the whistle blowing?