What is the Federal Railroad Retirement Act of 1974?

The Federal Railroad Retirement Act of 1974 was enacted on 16th October 1974. The act is based upon principles and recommendations of the report commissioned over the labor-management agreement. The Retirement Act is influenced by the two-tier formula and dual benefits.

Some of the salient features of the Federal Railroad Retirement Act of 1974 are stated below:

Two-tier Formula

The Federal Railroad Retirement Act of 1974 yielded amounts for the retired equal to the amount provided by the social security benefits using the first-tier formula. It acknowledges both the railroad retirement as well as the social security credits for the non-railroad retirees.

Two-tier formula

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The 2nd tier formula works on the railroad service. It provides benefits to all the people who are paid over and above the social security benefits by other institutions of pension systems.  The total annuity increased the cost of living by yielding both the formulae of railroad retirement benefits. It aggregated to almost 51.8 percent in the years of 1970-1972.

The Increased Cost of Living

As the consumer price index brought changes in the lives of the general public, amendments were made in the Social Security Act of 1972. It introduced newer provisions for the adjustments for cost of living as per the standards of social security benefits.

As per the two-tier plan, the railroad retirement benefits increased exactly the same amount as the social security benefits increased. The cost of living adjustments was extended four times till the year 1975. Another increase was added subsequently in the legislation of the Railway Retirement Act.

 Dual Benefits

The Federal Railroad Retirement Act of 1974  was proposed mainly to eliminate the duplicity of railroad retirement and social security benefits especially for the individuals and new hires as per the date of 31st December 1974.

The provision protected dual benefits of the vested employees for the payments of the annuities which were also referred to as “vested dual benefit.” However, the vested dual benefits were banished from increasing the amount of any railroad credits or social security gained after 31st December 1974.

The career employees were granted a vest as per completion of 10 years of service in the railroad department. If a person reached the age of 62, and he became eligible for social security program benefits then he was not eligible to acquire any credits from the Railroad Act.

Dual benefit

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The problem was employees who did qualify for both the benefits systems yet left the industry before 1974. The Federal Railroad Retirement Act of 1974 benefited the employees’ who stayed connected with the railroad industry compared to those who left the employment of the railroad industry.

Under the act, active and long-term employees were treated the same way as compared to the employees who had already retired from their services. The ex-employees were also provided benefits but they had to fulfill strict requirements before the approval of their respective cases.

Improvement of Benefits

The 1974 act improved many preexisting benefits. Initially, the agreement of labor and management made the employees retire after 1st July 1974 on the acquisition of annuities which were meeting the requirements after attaining the age of 60 years along with a completion of 30 years in service. The employee was not eligible to receive a supplemental annuity till the age of 65 or the spouse cannot receive the annuity till the employee is 65-year old.

Improvement of benefits

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The act revised the requirements of eligibility of these benefits in order to coordinate them directly with the employee annuity benefits.

As per the act of 1937, a majority of survivors especially their widows used to receive benefits based upon approximately 110 percent of the social security benefit which later on resulted in an amount that was generally inadequate to incorporate with the railroad benefits. The act of 1974, increased the percentage to 130.


The railroad retirement system went through a lot of changes in order to benefit the employees. The dual benefits were reduced, investment earnings were increased, and additional funds were filed for newer provisions from the federal government in order to pay back completely the costs of phaseouts.

The initial cost estimation did not take into account the substantial inflation surge which could add newer financial difficulties to an already detrimental railroad retirement system.


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The management of the labor committee proposed a financing formula to bear the cost of dual benefits, which will also cover the cost of vested payments of dual benefits out of the trust funds of social security benefits. This was a key element of the social security benefit, but later on, it was reverted by Congress stating that these costs should be incurred by the general treasury.

It was later suggested that the treatment is unfair to impose a cost on both current and future employees who may not want to receive the additional and excessive benefits at retirement.

The Federal Railroad Retirement Act of 1974 curtailed all the ambiguities which were ongoing in the department. It repealed the dual benefit system by bringing congressional actions to the committee and proving to be a fruitful activity for the industry.

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