	Background

The Railroad Retirement Act authorizes retirement, survivor, and disability benefits for railroad workers and their families. The Railroad Retirement Board (RRB), an independent federal agency, administers these benefits. The Tier I railroad retirement benefit that is equivalent to Social Security benefits is mainly finance by Tier I payroll taxes (typically the same rate as the 12.4% Social Security payroll tax) and Social Security's financial interchange transfers. Tier II benefits, Tier I benefits in excess of Social Security benefits, and supplemental annuities are mainly financed by Tier II payroll taxes (currently 13.1% on employers and 4.9% on employees) and transfers from the National Railroad Retirement Investment Trust (NRRIT; hereinafter, the Trust). History of the Trust

Beginning in 2002, Tier II tax revenues in excess of obligatory benefits and associated administrative costs have been transferred from the Railroad Retirement Accounts to the Trust, which is invested in private stocks, bonds, and other investments. Prior to the Railroad Retirement and Survivors' Improvement Act of 2001 (RRSIA; P.L. 107-90 ), surplus railroad retirement assets could be invested only in U.S. government securities—just as the Social Security trust funds must be invested. The RRSIA established the Trust to manage and invest assets in the Railroad Retirement Account in much the same way that the assets of private-sector retirement plans are invested. Since February 2002 when railroad retirement funds were first invested through the Trust, a total of $21.3 billion has been transferred to the Trust from the RRB, and $21.1 billion in earnings have been transferred from the Trust to the RRB to pay railroad benefits and administrative expenses. At the end of FY2017, the market value of the Trust's managed assets was $26.5 billion. Structure of the Trust

		Independence

Congress structured the Trust to be independent and free of political interference. As such, the Trust is a tax-exempt entity independent of the RRB and is not part of the federal government. Investing railroad retirement funds in private markets was expected to yield higher average annual returns than investing solely in government securities. The ABR is the ratio of the combined fair market value of Railroad Retirement Account and Trust assets as of the close of the fiscal year to the total RRB benefits and administrative expenses paid from the Railroad Retirement Account and the Trust in that fiscal year. Investment Guidelines

The Trust's assets are invested in a diversified portfolio, both to minimize investment risk and avoid disproportionate influence over a particular industry or firm. Oversight

The Trust is an independent nongovernmental entity, and it is not subject to the same oversight as federal agencies. The RRSIA outlines specific reporting requirements, including an annual management report to Congress. From FY2003 to FY2017, the Trust's annual rates of return, net of fees, have averaged 8.3%. Administrative Expenses

The Trust's administrative expenses steadily increased through FY2011 as its investment portfolio diversified.
The Railroad Retirement Board (RRB), an independent federal agency, administers retirement, survivor, disability, unemployment, and sickness insurance for railroad workers and their families. Railroad retirement payroll taxes include two tiers—Tier I and Tier II taxes. The Tier I tax finances the Tier I railroad retirement benefit that is equivalent to Social Security benefits and the Tier II tax finances the Tier II benefit, Tier I benefits in excess of Social Security benefits, and supplemental annuities.
Since 2002, Tier II tax revenues in excess of obligatory RRB benefits and associated administrative costs have been invested in private stocks, bonds, and other investments. Prior to the Railroad Retirement and Survivors' Improvement Act of 2001 (RRSIA; P.L. 107-90), surplus railroad retirement assets could only be invested in U.S. government securities—just as the Social Security trust funds must be invested. The RRSIA established the National Railroad Retirement Investment Trust (NRRIT; hereinafter, the Trust) to manage and invest part of the RRB's assets in much the same way that the assets of private-sector and most state and local government pension plans are invested. The remainder of RRB's assets continues to be invested solely in U.S. government securities.
Congress structured the Trust in an effort to ensure investment independence and limit political interference. It also aimed to increase railroad retirement system funding, add enhanced benefits, potentially reduce taxes, and protect system financing in case of market downturns. The Trust's assets are invested in a diversified portfolio, both to minimize investment risk and avoid disproportionate influence over an industry or firm. The Trust is a tax-exempt entity independent of the federal government, and it is not subject to the same oversight as federal agencies. However, the RRSIA requires an annual management report to Congress.
From its inception in February 2002 to September 30, 2017, $21.3 billion has been transferred to the Trust from the RRB and $21.1 billion has been transferred from the Trust to pay railroad retirement benefits. At the end of FY2017, the net asset value of the Trust was $26.5 billion.
The Trust's investments have generally followed the markets' recent performance. From FY2003 to FY2017, the Trust's annual returns averaged 8.3%, slightly higher than expectations of the bill's drafters, who assumed nominal annual returns of 8.0%. As the Trust's investment portfolio diversified over time, its administrative expenses steadily increased, to 36 basis points in FY2011, but fell to 31 basis points in FY2017, and remain low when compared with other mutual funds.
The combined fair market value of Tier II taxes and Trust assets is designed to maintain four to six years' worth of RRB benefits and administrative expenses. To maintain this balance, the Railroad Retirement Tier II tax rates automatically adjust as needed. This tax adjustment does not require congressional action. The Railroad Retirement Tier II tax rates increased in 2013 and most recently in 2015.