Big Rock Candy Mountain

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Since I have reported quite often in these pages about the many government pension and health benefit liabilities this country faces, it is always a surprise when I stumble across a new problem in this area. But I recently read two articles written by Walt Bogdanich for The New York Times, surveying an obscure federal agency that is yet another example of the liability crisis we face.

It turns out that railroad workers have their own version of Social Security. It is overseen by a federal agency called the Railroad Retirement Board, located in Chicago. It was established in the 1930s. While the railroad industry has declined over the decades, this board still administers benefits to over 600,000 people. There are three board members, all paid $150,000 a year, and all presidential appointees. Bogdanich (and his co-researcher Nicholas Phillips) have uncovered some interesting facts about this little fiefdom.

First, the board almost never meets. When the president of the Long Island Rail Road, Helena Williams, asked to sit in on its next meeting, she was told that it hadn’t had a formal one in two years – and no meetings were scheduled! The members “telecommute.” It seems that 150K a year doesn’t quite cover a car in Chi-town.

Now, the reason why Ms. Williams wanted to sit in on one of the meetings of this shy little board was to find out why the yearly approval rate for Long Island Rail Road employees’ disability and early retirement fees is so high. By “high” I mean in the mid-to-high 90% range. Last year the board approved 98% of all the disability claims it received, no matter what the rail company was or where the employees lived.

Indeed, the long-term approval rate for disability claims by the Railroad Retirement Board is 700/0, compared to 55% for the already generous Social Security disability program. Nine years ago, an internet audit by two doctors – one appointed by labor, one by business management – estimated that 20% of the disability awards granted by the board were unjustified. That was almost identical to the estimate of 21% unjustified disability grants given by the General Accounting Office in 1984.

Apparently, the labor member of the three-person board, and labor leaders generally, view disability as just another benefit due the workers, and have resisted bringing it under fiscal control. Labor fought updating the archaic categories of disability (such as “middle-class moronism,” or having a “repugnant scar”) that are used as bases for disability benefits. It has also fought independent medical screening tests for disability applicants.

The money we are talking about can be quite high. For example, one married couple, both members of which are retired and disabled, draws $280,000 in yearly benefits, and will do so until they die. In another case, an engineer, by using the work rules negotiated by his union, was able to pull down $277,000 in one year – five times his base salary. He then retired and got disability, at age 56. Yet another engineer, age 60, is getting $170,000 a year in disability and retirement payments, and will get them for life.

By the way, many of the “disabled” are white-collar workers. Quite a few can be found on the golf course.

The fund that pays all the disability, retirement, unemployment, survivor, and sickness benefits is supported by taxes on railroad workers and companies. So the attitude of labor, expressed by the United Transportation Union’s legislative director is, “If labor and management put the money in the pot and we decide how our money is distributed, and the only role government plays is to be the holder of that money – what is the problem?”

The problem, you clown, is that these taxes are ultimately paid by consumers in the form of higher prices. Moreover, because of a 1951 law, most of the liability for all these retirees (disabled and regular) falls under the regular Social Security program, so any unfunded liabilities come out of the pockets of every other retired person. (For 2007 alone, Social Security had to cough up $3.6 billion.) God, talk about suffering from middle-class moronism!

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