Characterizing Railroad Retirement Benefits

Railroad employees are not eligible for social security and their retirement benefits are divided into Tier 1 and Tier 2 benefits.

Tier 1 Benefits Not Subject to Characterization.

Tier 1 benefits are basically equal to the amount the railroad employee would have received under social security and are not subject to characterization.

Tier 2 Benefits are Subject to Characterization.

Tier 2 benefits are an additional monthly benefit paid over and above the Tier 1 benefit payment, based upon the employee’s salary and years of service.

Tier 2 benefits are calculated by multiplying the employee’s highest earnings over 60 months by the number of years of service, then multiplying that by .007.

Tier 2 benefits are treated as a defined benefit plan and are characterized according to the apportionment rules of defined benefit plans.