[Code of Federal Regulations]
[Title 20, Volume 1]
[Revised as of April 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 20CFR234.58]

[Page 478-479]
 
                      TITLE 20--EMPLOYEES' BENEFITS
 
                  CHAPTER II--RAILROAD RETIREMENT BOARD
 
PART 234_LUMP-SUM PAYMENTS--Table of Contents
 
         Subpart F_Tier II Separation Allowance Lump-Sum Payment
 
Sec. 234.58  Computation of the separation allowance lump-sum payment.

    The separation allowance lump-sum payment is calculated as follows:
    (a) Determine the amount of the compensation due to the receipt of 
separation or severance pay that could not be considered in the 
computation of tier II;
    (b) Multiply this amount by the rate or rates of tax imposed by 
section 3201(b) of the Internal Revenue Code of 1954 or 1986 on the 
compensation (tier II tax); and
    (c) The product is the amount of the separation allowance lump-sum 
payment.

    Example: In January of 1988 an employee with 10 years of railroad 
service relinquished his seniority rights in order to receive a 
separation allowance of $20,000, thereby severing his employment 
relation. This was the only creditable railroad compensation earned by 
the employee in 1988. Both the employer and employee would have paid 
their share of railroad retirement taxes on this amount. With respect to 
the employee tier II tax, the tax

[[Page 479]]

rate for 1988 was 4.9% under section 3201(b) of the Internal Revenue 
Code of 1986. Although the full $20,000 was creditable under the 
Railroad Retirement Act for tier I benefit computation purposes, only 
one month's compensation, $2,800, one-twelfth of the annual tier II 
earnings base of $33,600 for 1988, was creditable for tier II benefit 
purposes. This is because section 3(i)(4) of the Railroad Retirement Act 
does not permit crediting of compensation for tier II computation 
purposes after the employment relation has been severed. Under the lump-
sum provision discussed above, the employee in this example would, upon 
award of his employee annuity, receive a payment of $842.80 ($20,000 
minus $2,800, the amount of separation allowance that was creditable, or 
$17,200 times 4.9%).