PART 225—PRIMARY INSURANCE AMOUNT DETERMINATIONS Authority: 45 U.S.C. 231f(b)(5). Source: 54 FR 12903, Mar. 29, 1989, unless otherwise noted. Subpart A—General § 225.1 Introduction. This part discusses Primary Insurance Amount, which is referred to as PIA throughout this part, and which is an important element in the calculation of any retirement or survivor annuity. There are a number of PIA computations based on different periods, amounts, and types of earnings. However, the formulas for computing any PIA are prescribed in section 215 of the Social Security Act and are described in detail in the regulations of the Social Security Administration (20 CFR part 404, subpart C). This part discusses PIA computation formulas and relates them to the PIA's which the Board uses. Descriptions of the majority of PIA's used in computing retirement or survivor annuities under the Railroad Retirement Act are contained in this part. Explanations are included of when delayed retirement credits and cost-of-living increases can be added to the PIA's used by the Board. This part also explains when and how a PIA is recomputed or adjusted. Since these regulations are intended to address annuities currently being awarded, certain PIA's, not used in the computation of annuities awarded after August 13, 1981, are not included in these regulations. Parts 226, 228 and 229 of this chapter explain how PIA's are used in actual annuity computations. § 225.2 Definitions. As used in this part: Average Indexed Monthly Earnings Average Monthly Earnings Base Years Benefit Computation Years Compensation railroad compensation Earnings compensation Eligible Eligibility Year Employee Entitled Indexed Earnings Primary Insurance Amount Social Security Act Wages Year of service Years of coverage [54 FR 12903, Mar. 29, 1989, as amended at 68 FR 39010, July 1, 2003] § 225.3 PIA computation formulas. (a) General. (b) Average Indexed Monthly Earnings PIA formula. (c) Average Monthly Earnings PIA formula. (1) Use of Average Monthly Earnings PIA formula based on the employee's eligibility year. (2) Types of PIA's always computed using the Average Monthly Earnings PIA formula. (i) Combined Earnings Dual Benefit PIA described in § 225.12. (ii) Social Security Earnings Dual Benefit PIA described in § 225.13. (iii) Railroad Earnings Dual Benefit PIA described in § 225.14. (iv) Combined Earnings PIA described in § 225.23. (v) Social Security Earnings PIA described in § 225.24. (vi) Railroad Earnings PIA described in § 225.25. (d) Special Minimum PIA formula. § 225.4 Limitation on amount of earnings used to compute a PIA. Certain PIA's used by the Board are based on a combination of compensation and wages, while other PIA's used by the Board are based solely on either compensation or wages. For purposes of crediting earnings when computing any PIA, compensation is always treated as wages. Regardless of whether a PIA is based on a combination of compensation and wages or exclusively on either compensation or wages, the total earnings for each year used in computing a PIA cannot be higher than the maximum social security earnings creditable in that year under sections 209(a) and 211(b) of the Social Security Act. The various PIA's used by the Board are described in subparts B and C of this part. Subpart B—PIA's Used in Computing Employee, Spouse and Divorced Spouse Annuities § 225.10 General. This subpart contains information about the PIA's that can be used in computing most employee, spouse and divorced spouse annuities. The Tier I PIA is used in computing the tier I component of an employee, spouse or divorced spouse annuity. The Combined Earnings Dual Benefit PIA, Social Security Earnings Dual Benefit PIA and Railroad Earnings Dual Benefit PIA are used in computing an employee's vested dual benefit component and a corresponding tier II component offset when entitlement to a vested dual benefit exists. Retirement annuity computations are discussed in part 226 of this chapter. The Overall Minimum PIA is used in computing the overall minimum guaranty formula rate as discussed in part 229 of this chapter. § 225.11 Tier I PIA. (a) General. (b) Employee attains age 60 and/or acquires 30 years of service after June 30, 1984. (1) Four months before the first full month the employee is age 62, the Average Indexed Monthly Earnings is determined as if the employee's eligibility year were the year the annuity began. (2) The benefit computation years used in computing the Tier I PIA are based on the date of the employee's actual attainment of age 62. (3) The Tier I PIA is adjusted when the employee reaches age 62 to use the year in which the employee attains age 62 as the eligibility year. (4) Cost-of-living increases and recomputations apply after the employee attains age 62. (c) Employee attains age 60 and acquires 30 years of service before July 1, 1984. (d) Disability annuity. § 225.12 Combined Earnings Dual Benefit PIA. (a) General. (b) Employee insured on own wage record on December 31, 1974. (1) Had at least 25 years of railroad service before January 1, 1975; or (2) Had at least 10 years of railroad service as of December 31, 1974, and worked in the railroad industry anytime during calendar year 1974; or (3) Had at least 10 years of railroad service as of December 31, 1974, and had a current connection with the railroad industry (as described in part 216 of this chapter) on December 31, 1974, or when the employee annuity began. (c) Employee insured on own wage record in last year of railroad service. (1) Had at least 10 but less than 25 years of railroad service through December 31, 1974; and (2) Did not work in the railroad industry during 1974; and (3) Did not have a current connection with the railroad industry (as described in part 216 of this chapter) on December 31, 1974, or when the employee annuity began. § 225.13 Social Security Earnings Dual Benefit PIA. (a) General. (b) Employee insured on own wage record on December 31, 1974. (1) Had at least 25 years of railroad service before January 1, 1975; or (2) Had at least 10 years of railroad service as of December 31, 1974, and worked in the railroad industry anytime during calendar year 1974; or (3) Had at least 10 years of railroad service as of December 31, 1974, and has a current connection with the railroad industry (as described in part 216 of this chapter) on December 31, 1974, or when the employee annuity began. (c) Employee insured on own wage record in last year of railroad service. (1) Had at least 10 but less than 25 years of railroad service through December 31, 1974; and (2) Did not work in the railroad industry during 1974; and (3) Did not have a current connection with the railroad industry (as described in part 216 of this chapter) on December 31, 1974, or when the employee annuity began. § 225.14 Railroad Earnings Dual Benefit PIA. (a) General. (b) Employee insured on own wage record on December 31, 1974. (1) Had at least 25 years of railroad service before January 1, 1975; or (2) Had at least 10 years of railroad service as of December 31, 1974, and worked in the railroad industry anytime during calendar year 1974; or (3) Had at least 10 years of railroad service as of December 31, 1974, and had a current connection with the railroad industry (as described in part 216 of this chapter) on December 31, 1974, or when the employee annuity began. (c) Employee insured on own wage record in last year of railroad service. (1) Had at least 10 but less than 25 years of railroad service through December 31, 1974; and (2) Did not work in the railroad industry during 1974; and (3) Did not have a current connection with the railroad industry (as described in part 216 of this chapter) on December 31, 1974, or when the employee annuity began. § 225.15 Overall Minimum PIA. The Overall Minimum PIA is considered when the employee would be eligible for an old age insurance benefit or a disability insurance benefit under section 202 or 223 of the Social Security Act based on combined railroad and social security earnings. The Overall Minimum PIA is used in computing the social security overall minimum guaranty amount. The overall minimum guaranty rate annuity formula is discussed in part 229 of this chapter. The Overall Minimum PIA is determined under the rules in sections 215 and 223 of the Social Security Act. Railroad and social security earnings are included in the calculation of the Overall Minimum PIA. The Overall Minimum PIA is used to determine the amount which is treated as a social security benefit for the purpose of taxation pursuant to section 86(d) of the Internal Revenue Code of 1986. Subpart C—PIA's Used in Computing Survivor Annuities and the Amount of the Residual Lump-Sum Payable § 225.20 General. The Survivor Tier I PIA and the Employee RIB PIA are used in computing the tier I component of a survivor annuity. The Combined Earnings PIA, Social Security Earnings PIA and Railroad Earnings PIA may be used in computing a vested dual benefit offset in the survivor tier II component when the survivor tier II is based on a percentage of the employee annuity tier II. In addition, these three PIA's are identical to those dual benefit PIA's used in computing an employee retirement annuity, as described in subpart B of this part, when the employee died after being entitled to an annuity. Survivor annuity computations are discussed in part 228 of this chapter. The Residual Lump-Sum PIA (RLS PIA) is used in computing the amount of the residual lump-sum payable when retirement annuity payments were made, as explained in part 234 of this chapter. § 225.21 Survivor Tier I PIA. The Survivor Tier I PIA is used in computing the tier I component of a survivor annuity. This PIA is determined in accordance with section 215 of the Social Security Act using the deceased employee's combined railroad and social security earnings after 1950 (or after 1936 if a higher PIA would result) through the date of the employee's death. § 225.22 Employee RIB PIA used in survivor annuities. The Employee Retirement Insurance Benefit PIA (Employee RIB PIA) is used to compute the employee RIB amount when the employee had received a retirement annuity which was reduced for early retirement. As explained in part 228 of this chapter, the employee RIB amount may be used in the survivor tier I component. This PIA is computed in accordance with section 215 of the Social Security Act using the deceased employee's combined railroad and social security earnings. The Employee RIB PIA is the same as the Survivor Tier I PIA when the employee had no earnings in the year of death. Earnings in the year of death are used in the recomputed PIA beginning January 1 of the year after the employee's death. (See subpart F of this part for a discussion of PIA recomputations.) § 225.23 Combined Earnings PIA used in survivor annuities. The Combined Earnings PIA used in survivor annuities may be used in computing the tier II component when the survivor tier II is based on a percentage of the employee annuity tier II and the employee had been or would be, if he or she were still alive, entitled to a vested dual benefit. If the employee received a retirement annuity before death, this PIA is identical to the retirement Combined Earnings Dual Benefit PIA described in subpart B of this part. If a retirement annuity was not paid before the employee's death, the PIA is determined as if the employee were 65 years old in the month of his or her death. The Combined Earnings PIA used in survivor annuities is determined in accordance with section 215 of the Social Security Act as in effect on December 31, 1974. It is computed using the deceased employee's combined railroad and social security earnings after 1950 (or after 1936 if a higher PIA would result) through December 31, 1974. § 225.24 SS Earnings PIA used in survivor annuities. The Social Security Earnings PIA (SS Earnings PIA) used in survivor annuities may be used in computing the tier II component when the survivor tier II is based on a percentage of the employee annuity tier II and the employee had been or would be, if he or she were still alive, entitled to a vested dual benefit. If the employee received a retirement annuity before death, this PIA is identical to the retirement SS Earnings Dual Benefit PIA described in subpart B of this part. If a retirement annuity was not paid before the employee's death, the PIA is determined as if the employee were 65 years old in the month of his or her death. The SS Earnings PIA used in survivor annuities is determined in accordance with section 215 of the Social Security Act as in effect on December 31, 1974. It is computed using the deceased employee's social security earnings after 1950 (or after 1936, if a higher PIA would result) through December 31, 1974. § 225.25 RR Earnings PIA used in survivor annuities. The Railroad Earnings PIA (RR Earnings PIA) used in survivor annuities may be used in computing the tier II component when the survivor tier II is based on a percentage of the employee annuity tier II and the employee had been or would be, if he or she were still alive, entitled to a vested dual benefit. If the employee received a retirement annuity before death, this PIA is identical to the retirement RR Earnings Dual Benefit PIA described in subpart B of this part. If a retirement annuity was not paid before the employee's death, the PIA is determined as if the employee were 65 years old in the month of his or her death. The RR Earnings PIA used in survivor annuities is determined in accordance with section 215 of the Social Security Act as in effect on December 31, 1974. It is computed using the deceased employee's railroad earnings after 1950 (or after 1936, if a higher PIA would result) through December 31, 1974. § 225.26 Residual Lump-Sum PIA. The Residual Lump-Sum PIA (RLS PIA) is used to compute the regular retirement annuity amounts to be deducted from the gross residual lump-sum amount in determining the amount of the residual lump-sum payable, as explained in part 234 of this chapter. The RLS PIA is determined in accordance with section 215 of the Social Security Act using the employee's railroad compensation after 1950 (or after 1936, if a higher PIA would result) as if it were social security earnings. The RLS PIA is computed just like the retirement Tier I PIA described in subpart B of this part, except that social security earnings are not used to compute the RLS PIA. Subpart D—Delayed Retirement Credits § 225.30 General. (a) A delayed retirement credit (DRC) is a percentage increase in a PIA. An employee who would have an insured status in accordance with section 214(a) of the Social Security Act based on combined railroad and social security earnings can earn DRC's. A DRC can be earned by the employee for each month, in or after the month of attaining full retirment age and before the month of attaining age 70 (72 before 1984), in which the employee does not receive either— (1) An annuity because the employee did not apply for an annuity; or (2) The tier I and vested dual benefit work deduction annuity components or the social security overall minimum annuity rate because they are not paid since the employee works and has earnings in excess of the exempt amount. (The tier I and vested dual benefit work deduction annuity components, the social security overall minimum annuity rate and the exempt amount are described in parts 226, 229 and 230 of this chapter, respectively.) (b) Any credit earned by the employee also extends to the employee's widow(er), remarried widow(er) or surviving divorced spouse when he or she receives a survivor annuity that is based on age or disability. (c) Credit earned by the employee does not extend to the employee's spouse or divorced spouse. [54 FR 12903, Mar. 29, 1989, as amended at 68 FR 39010, July 1, 2003] § 225.31 PIA's to which DRC's are added. (a) DRC's can be added to the following PIA's when used in computing the following benefits: (1) Tier I PIA used in computing a retirement employee annuity. (2) Overall Minimum PIA used in computing a retirement employee annuity. (3) Survivor Tier I PIA used in computing a widow(er), remarried widow(er) or surviving divorced spouse annuity based on age or disability. (4) Employee RIB PIA used in computing a widow(er), remarried widow(er) or surviving divorced spouse annuity based on age or disability. (5) RLS PIA used in computing the amount of the residual lump-sum payable (as explained in part 234 of this chapter). § 225.32 DRC's and the Special Minimum PIA. Delayed retirement credits cannot be added to the Special Minimum PIA. Delayed retirement credits can only be added to the regular PIA's used in computing the benefits outlined in § 225.31. § 225.33 Months for which DRC's are due. (a) A DRC is due for each month after 1970 in which the employee is— (1) Full retirement age or older and under age 70 (72 before 1984); and (2) Fully insured under section 214(a) of the Social Security Act based on combined railroad and social security earnings; and either— (i) Is not entitled to an annuity because he or she did not apply for an annuity; or (ii) Is entitled to an annuity but has the full amount of the tier I and vested dual benefit work deduction component (described in part 226 of this chapter) or the social security overall minimum rate (described in part 229 of this chapter) withheld because of earnings in excess of the exempt amount (as explained in part 230 of this chapter). (b) The months for which credit is due need not be consecutive. [54 FR 12903, Mar. 29, 1989, as amended at 68 FR 39010, July 1, 2003] § 225.34 How the amount of the DRC is figured. (a) The amount of the DRC depends on— (1) The year the employee reaches full retirement age; and (2) The number of months for which the credit is due, as explained in § 225.33. (b) The percent given in paragraph (b)(1), (2), or (3) of this section is multiplied by the PIA; that product is then multiplied by the number of months for which credit is due and rounded to the next lowest multiple of $0.10, if the answer is not already a multiple of $0.10. The result is the DRC which is added to the PIA. (1) Employee attained age 65 before 1982. (2) Employee attains age 65 after 1981 and before 1990. (3) Employee attains age 65 in 1990 and before 2003. (i) The rate of the DRC (one-fourth of one percent) is increased by one-twenty-fourth of one percent in each even year through 2002. Therefore, depending on when the employee attains age 65, the DRC percent will be as follows: Year employee attains age 65 Delayed retirement credit percent 1990 7 24 1991 Do. 1992 1 3 1993 Do. 1994 3 8 1995 Do. 1996 5 12 1997 Do. 1998 11 24 1999 Do. 2000 1 2 2001 Do. 2002 13 24 (ii) The delayed retirement credit equals the appropriate percent of the PIA times the number of months in which the employee is age 65 or older and for which credit is due. (4) Employee attains full retirement age in 2003 or later. The rate of the DRC (one-fourth of one percent) is increased by one-twenty-fourth of one percent in each even year through 2008. Therefore, depending on when the employee attains full retirement age, the DRC percent will be as follows: Year employee attains full retirement age Delayed retirement credit percent 2003 13 24 2004 7 12 2005 Do. 2006 5 8 2007 Do. 2008 and later 2 3 (c) Example: Percent PIA No. of months Unrounded result Total amount of DRC's .25% X 350.50 X 12 = 10.51 = $10.50 Mr. Jones' PIA increase for DRC's is $361.00 (350.50 + 10.50). [54 FR 12903, Mar. 29, 1989; 54 FR 21203, May 17, 1989, as amended at 68 FR 39010, July 1, 2003; 68 FR 43515, Aug. 1, 2003] § 225.35 When a PIA used in computing a retirement annuity can be increased for DRC's. Delayed retirement credits earned at different times are added to the PIA used in computing a retirement annuity as follows: DRC's earned for month in Are added to PIA Years before the year the employee annuity begins On the date the annuity begins. Year the annuity begins On January 1 of the year after the annuity begins. Years after the annuity begins, and before the year the employee attains age 70 (72 before 1984) On January 1 of the year after the credits are earned. Year the employee attains age 70 (72 before 1984) In the month age 70 (or 72) is attained. § 225.36 Effect of DRC's on survivor annuities. (a) Widow(er), remarried widow(er) or surviving divorced spouse. (b) Other survivor annuities. Subpart E—Cost-of-Living Increases § 225.40 General. A cost-of-living increase is an automatic increase in a PIA provided under section 215(i) of the Social Security Act. The Social Security Administration determines the percentage amount of any cost-of-living increase paid by the Board. § 225.41 How a cost-of-living increase is determined and applied. Depending on the condition of the social security trust funds, the increase can be based on rises in either the consumer price index as published by the Department of Labor or the average wage index which is the average of the annual total wages used for computing a PIA. The increase is payable when the appropriate index for the third calendar quarter of one year shows an increase of at least three percent over the same index for the third calendar quarter of the previous year (or the last calendar quarter within which a legislated general benefit increase became effective). No increase is payable for the calendar year that immediately follows a year in which a legislated general benefit increase was effective. The increase amount is determined by multiplying the PIA by the percentage increase in the appropriate quarter of a previous year. § 225.42 Notice of the percentage amount of a cost-of-living increase. The percentage amount of the cost-of-living increase is published in the Federal Register § 225.43 PIA's subject to cost-of-living increases. The Retirement Tier I, Overall Minimum, Survivor Tier I, Employee RIB and RLS PIA's are adjusted for cost-of-living increases. The remaining PIA's described in subparts B and C of this part are frozen at the amounts determined under the Social Security Act as in effect on December 31, 1974. § 225.44 When a cost-of-living increase is payable. A cost-of-living increase is payable beginning with December of the year for which the increase is due. The increase is paid in the January payment. Subpart F—Recomputing PIA's § 225.50 General. After an annuitant begins receiving an annuity, the PIA's may be recomputed as explained in § 225.52. Most recomputations result in an increase in the PIA. The Board pays a recomputed PIA when an increase of at least $1 results. Most recomputations are processed automatically and require no action by the annuitant. § 225.51 PIA's that are subject to recomputation. The following PIA's are subject to recomputation— (a) Tier I PIA; (b) Survivor Tier I PIA; (c) Overall Minimum PIA; (d) Employee RIB PIA; and (e) Residual Lump-Sum PIA. § 225.52 Reasons for recomputing a PIA. There are three major reasons for recomputing a PIA: (a) Recomputation to consider additional earnings. (b) Recomputation when an employee is eligible for periodic pension payments based on other than railroad or social security earnings. (c) Recomputation to use a new or different PIA formula, as provided in section 215(f) of the Social Security Act. § 225.53 Recomputation to consider additional earnings. (a) Additional earnings that cause a recomputation Earnings not included in earlier computation or recomputation. (2) Earnings in the year an employee becomes entitled to an age annuity or becomes disabled. (3) Earnings not reported in time to use them in the computation of the PIA. (4) Earnings after entitlement that are used in a recomputation. (b) Effective date of recomputation to consider additional earnings. (1) Date the annuity begins. (2) January of the year following the year an employee receiving an age annuity attains age 62. (3) January of the year following the year an employee becomes disabled. (4) January of the year following the year in which the earnings are earned. Example: Mr. Jones, a railroad employee, becomes entitled to an age annuity in June 1986, at the age of 62. Although Mr. Jones has earnings of $23,000 in the first five months of 1986, those earnings cannot be used in the initial computation of the Tier I PIA. However, effective with January 1, 1987, the Tier I PIA is recomputed to include the earnings for 1986. § 225.54 Recomputation when an employee is eligible for periodic pension payments based on other than railroad or social security earnings. (a) Description. (1) The employee has less than 30 years of coverage as defined in section 215(a) of the Social Security Act. The years of coverage include railroad and social security earnings; (2) The employee becomes eligible for an annuity after 1985; and (3) The employee becomes eligible for the periodic pension payments after 1985 based, in part or in whole, on earnings after 1956 not covered under either the Social Security Act or the Railroad Retirement Act. (b) Effective date of recomputation. § 225.55 Recomputation to use a new or different PIA formula. (a) Description New computation formula. (2) Recomputation under different formula. (b) Effective date of recomputation New computation formula. (2) Different computation formula. § 225.56 Automatic recomputation. Periodically, the Board reviews the earnings record of every retired, disabled and recently deceased employee to see if a recomputation of the PIA is necessary. When a recomputation is called for due to a change in the reported railroad or social security earnings, the Board processes it automatically. Increased benefits resulting from a recomputation are paid from the earliest month that the recomputation is effective. The annuitant does not have to request a recomputation to consider additional earnings, although the annuitant may request a recomputation before the automatic recomputation is processed. However, the effective date of the recomputation is the same, whether the recomputation is done automatically or at the request of the annuitant. § 225.57 Requesting a recomputation. An annuitant who meets the conditions for a recomputation may request that his or her PIA be recomputed sooner than it would be recomputed automatically. Providing inclusion of the additional earnings increases the PIA, the Board will recompute the PIA from the earliest permissible date as described in this part. § 225.58 Waiver of recomputation. If the employee or the employee's family are disadvantaged in any way by a recomputation of a PIA to consider additional earnings, a request can be made to waive or give up the right to the recomputation. Such a request must be in writing and be made by every entitled family member. A request for waiver of a recomputation applies only to that recomputation for which the request is made. Subpart G—Adjusting PIA's § 225.60 Adjustment at age 62 when employee is entitled to an annuity based on 30 years of railroad service. (a) Description. (b) Effective date of adjustment.