Railroad Retirement Acts

Railroad Retirement Acts On 27 June 1934, Congress created a comprehensive, compulsory retirement system for transportation workers subject to the Interstate Commerce Commission Act. On 6 May 1935, in Railroad Retirement Board et al. v. Alton Railroad Company et al., the Supreme Court (5–4) held that it violated the Fifth Amendment by improperly confiscating corporate property and it was not warranted under the Constitution’s grant of federal authority over interstate commerce. Congress reenacted its provisions in the Wagner–Crosser Railroad Retirement Act (29 August 1935), but a district court struck down its financing measure, a tax on payrolls.

The Roosevelt administration solved the constitutional problem of financing railroad pensions by having the companies and unions draft a voluntary agreement to fund pensions by joint contributions from employees and railways. The Railroad Retirement Act (29 June 1937) enacted this formula, exempted railway workers from social security laws (see Social Security Administration), and created the Railroad Retirement Board.

Because the number of railway workers shrank from 700,000 in 1980 to 400,000 in 1983, the system’s 1,000,000 retirees faced pension reductions of 40 percent to prevent impending insolvency. The Railroad Retirement Act (12 August 1983) averted this prospect. It raised employee and employer payments by $0.5 billion over five years, contributed $1.7 billion in federal money (offset by higher taxes on retiree benefits), cut benefits for early retirement, and delayed cost-of-living increases by six months.