November 20, 1987

To the Congress of the United States:

I hereby submit to the Congress the Annual Report of the Railroad Retirement Board for Fiscal Year 1986, pursuant to the provisions of Section 7(b)(6) of the Railroad Retirement Act, enacted October 16, 1974, and Section 12(1) of the Railroad Unemployment Insurance Act, enacted June 25, 1938.

The rail industry pension fund has nearly gone broke three times since 1974. Significant declines in rail employment have eroded the pension fund's contribution base. Refinancing legislation enacted in 1974, 1981, and 1983 has failed to provide long-term solutions for the rail pension system. The Railroad Retirement Board's chief actuary is again predicting cash-flow problems and recommends an upward adjustment in the rail sector's contributions.

Rail industry pensions should be fully financed from rail sector resources. As long as the Federal Government has a fiduciary responsibility for rail pensions, I will work to ensure that rail sector contributions are adequate to finance rail retirees' benefits. I therefore concur with the chief actuary, Board Chairman Gielow, and Board Member Chamberlain that the rail sector's contributions should increase to prevent the pending financial crisis and to ensure adequate financing for rail industry pensions. I renew my August recommendation for a 3-percent rail sector contribution rate increase on January 1, 1988, and a 1.5-percent increase on January 1, 1989.

I strongly oppose suggestions by some to restart American taxpayer subsidies to the rail sector by transferring Federal income taxes collected on rail pensions to the rail industry pension fund. As the Congress recognized in 1983 and 1986, rail pensions -- the amounts above social security equivalent levels -- are private pensions and should be treated like all other private industry pensions. Income taxes collected on these private pensions should go to the general fund, not be converted to subsidies to the rail sector.

The long-term solution for the rail pension system lies in the private sector, where all other industry pension systems reside. Rail labor and management should be allowed to determine pension financing and payment provisions free from Federal intrusion and participation. I therefore reaffirm my position that the rail pension system should be restored to the private sector and terminated as a Federally administered program.

Ronald Reagan

The White House,

November 20, 1987.

Note: The 134-page report was entitled "Railroad Retirement Board, 1986 Annual Report for the Fiscal Year Ending September 30.''