[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 497-498]

 

                      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 498]]



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%).