RRB11R004 Attachment A - RRB FY 2011 PAR.pdf

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Railroad Retirement Board Performance and Accountability Report

Fiscal Year 2010

TABLE OF CONTENTS

PAGE

Message from the Board Members

Management’s Discussion and Analysis Overview of the Railroad Retirement Board Mission Major Program Areas Railroad Retirement Act Railroad Unemployment Insurance Act Reporting Components RRB Organizational Structure Financial Highlights Comparison of Net Cost of Operations and Financing Sources Railroad Retirement Investments at Treasury National Railroad Retirement Investment Trust Program, Operations, and Financial Performance and Results Strategic Goals and Objectives Future Plans/Objectives Program Improvements Systems and Controls Management Assurances Financial Management Systems Strategy Summary of Actuarial Forecast Limitations of the Financial Statements American Recovery and Reinvestment Act of 2009 Worker, Homeownership and Business Assistance Act of 2009

Performance Section – Government Performance and Results Act (GPRA) Report

II

TABLE OF CONTENTS

PAGE

Financial Section Message from the Chief Financial Officer Financial Statements Consolidated Balance Sheet Consolidated Statement of Net Cost Consolidated Statement of Changes in Net Position Combined Statement of Budgetary Resources Statement of Social Insurance Notes to the Financial Statements Required Supplementary Information Social Insurance Program Financing Benefits Program Finances and Sustainability Disaggregate of Budgetary Resources Auditor’s Report

Other Accompanying Information Inspector General’s Statement on Management and Performance Challenges Management’s Comments Improper Payments Information Act (IPIA) Reporting Details Summaries of Financial Statement Audit and Management Assurances

Appendices Glossary of Acronyms and Abbreviations RRB Board Members, Inspector General, and Executive Committee

RRB’s fiscal year 2010 Performance and Accountability Report is available on the Internet at: www.rrb.gov

MESSAGE FROM THE BOARD MEMBERS

PAGE INTENTIONALLY LEFT BLANK

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Message from the Board Members

This fiscal year 2010 Performance and Accountability Report highlights the goals and accomplishments of the Railroad Retirement Board (RRB) in achieving its mission of administering the retirement, disability, and survivor benefit program provided under the Railroad Retirement Act (RRA) and the unemployment and sickness insurance benefit program provided under the Railroad Unemployment Insurance Act (RUIA). This report describes our continuing efforts to provide timely and useful information to RRB managers, the Office of Management and Budget (OMB), the Congress, and our constituents. We are proud of the agency’s dedicated employees whose achievements are reflected in this report.

The 75th anniversary of the enactment of the Railroad Retirement Act of 1935 is being observed during 2010. Part of President Franklin Delano Roosevelt’s New Deal legislation, the Act was signed into law on August 29, 1935. Established in a time of national crisis, the railroad retirement system has continued to serve railroad employees and their families through programs affording protection against the economic hazards of old age, disability, unemployment and sickness. By the beginning of the 2010 anniversary year, railroad retirement benefits of $281 billion had been paid by the RRB to 2,000,000 retired employees, 1,100,000 spouses and 2,400,000 survivors;

unemployment and sickness insurance benefits had totaled some $8 billion.

The RRB has a long and distinguished tradition of excellence in serving our customers and safeguarding the agency’s trust funds. In recent years, we have achieved high levels of accuracy and timeliness in the benefit programs we administer. In 2010, the RRB is again participating in the American Customer Satisfaction Index (ACSI) Survey, which will focus on customers’ experiences with the www.rrb.gov website. We will use the data to better understand our audiences and what they want from the RRB website. This year, we also implemented the Worker, Homeownership and Business Assistance Act of 2009 (WHBAA), which extended previous unemployment insurance payments made under the American Recovery and Reinvestment Act of 2009. WHBAA provided for up to 65 days of additional extended unemployment benefits under the RUIA. Through September 30, 2010, we had paid out approximately $19.4 million under the WHBAA program.

We believe the performance and financial data presented in this report are complete and reliable in accordance with OMB guidance. The adequacy and effectiveness of our management controls and the compliance of our financial management systems with governmentwide requirements are delineated in the Systems and Controls part of the Management’s Discussion and Analysis section.

That part also provides the status of the actions we are taking and progress we are making to correct Office of Inspector General identified material weaknesses in information security and non-integrated subsystems.

We will continue to apply information technology and innovation to provide excellent customer service to the railroad employers, railroad employees, and the beneficiaries whom we serve. We are also committed to prudent stewardship over the agency trust funds and the administrative resources entrusted to us.

Original signed by:

Michael S. Schwartz, Chairman V. M. Speakman, Jr., Labor Member

Jerome F. Kever, Management Member

November 5, 2010

MANAGEMENT’S DISCUSSION AND ANALYSIS

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Management’s Discussion and Analysis

Overview of the Railroad Retirement Board

Mission

The RRB is an independent agency in the executive branch of the Federal Government. The agency’s mission statement is as follows:

The RRB’s mission is to administer retirement/survivor and unemployment/sickness insurance benefit programs for railroad workers and their families under the Railroad Retirement Act and the

Railroad Unemployment Insurance Act. These programs provide income protection during old age and in the event of disability, death or temporary unemployment and sickness. The RRB also administers aspects of the Medicare program and has administrative responsibilities under the Social Security Act and the Internal Revenue Code. In carrying out its mission, the RRB will pay benefits to the right people, in the right amounts, in a timely manner, and will take appropriate action to safeguard our customers’ trust funds. The RRB will treat every person who comes into contact with the agency with courtesy and concern, and respond to all inquiries promptly, accurately and clearly.

Major Program Areas

The RRB was created in the 1930’s by legislation establishing a retirement benefit program for the nation’s railroad workers. Private industrial pension plans had been pioneered in the railroad industry; the first industrial pension plan in North America was established on a railroad in 1874. By the 1930’s, pension plans were far more developed in the rail industry than in most other businesses or industries, but these plans had serious defects which were magnified by the Great Depression.

The economic conditions of the 1930’s demonstrated the need for retirement plans on a national basis because few of the nation’s elderly were covered under any type of retirement program.

While the social security system was in the planning stage, railroad workers sought a separate railroad retirement system which would continue and broaden the existing railroad programs under a uniform national plan. The proposed social security system was not scheduled to begin monthly benefit payments for several years and would not give credit for service performed prior to 1937, while conditions in the railroad industry called for immediate benefit payments based on prior service.

Legislation was enacted in 1934, 1935, and 1937 to establish a railroad retirement system separate from the social security program legislated in 1935. Such legislation, taking into account particular circumstances of the rail industry, was not without precedent. Numerous laws pertaining to rail operations and safety had already been enacted since the Interstate Commerce Act of 1887. Since passage of the Railroad Retirement Acts of the 1930’s, numerous other railroad laws have subsequently been enacted.

While the railroad retirement system has remained separate from the social security system, the two systems are closely coordinated with regard to earnings credits, benefit payments, and

- 8 -taxes. The financing of the two systems is linked through a financial interchange under which, in effect, the portion of railroad retirement annuities that is equivalent to social security benefits is coordinated with the social security system. The purpose of this financial coordination is to place the social security trust funds in the same position they would be in if railroad service were covered by the social security program instead of the railroad retirement program.

Legislation enacted in 1974 restructured railroad retirement benefits into two tiers, so as to coordinate them more fully with social security benefits. The first tier is based on combined railroad retirement and social security credits, using social security benefit formulas. The second tier is based on railroad service only and is comparable to the private pensions paid over and above social security benefits in other industries.

The railroad unemployment insurance system was also established in the 1930’s. The Great Depression demonstrated the need for unemployment compensation programs, and State unemployment programs had been established under the Social Security Act in 1935. While the State unemployment programs generally covered railroad workers, railroad operations which crossed State lines caused special problems. Unemployed railroad workers were denied compensation by one State because their employers had paid unemployment taxes in another State. Although there were cases where employees appeared to be covered in more than one State, they often did not qualify in any.

A Federal study commission, which reported on the nationwide State plans for unemployment insurance, recommended that railroad workers be covered by a separate plan because of the complications their coverage had caused the State plans. The Congress subsequently enacted the Railroad Unemployment Insurance Act (RUIA) in June 1938. The RUIA established a system of benefits for unemployed railroad workers, financed entirely by railroad employers and administered by the RRB. Sickness insurance benefits were added in 1946.

Railroad Retirement Act

Under the Railroad Retirement Act (RRA), retirement and disability annuities are paid to railroad workers with at least 10 years of service. Such annuities are also payable to workers with 5 years of service if performed after 1995.

Full age annuities are payable at age 60 to workers with 30 years of service. For those with less than 30 years of service, reduced annuities are payable at age 62 and unreduced annuities are payable at full retirement age, which is gradually rising from 65 to 67, depending on the year of birth. Disability annuities can be paid on the basis of total or occupational disability.

Annuities are also payable to spouses and divorced spouses of retired workers and to widow(er)s, surviving divorced spouses, remarried widow(er)s, children, and parents of deceased railroad workers. Qualified railroad retirement beneficiaries are covered by Medicare at age 65, or earlier if disabled, in the same way as social security beneficiaries.

Jurisdiction over the payment of retirement and survivor benefits is shared by the RRB and the Social Security Administration (SSA). The RRB has jurisdiction over the payment of retirement benefits if the employee had at least 10 years of railroad service, or 5 years if performed after 1995; for survivor benefits, there is an additional requirement that the employee’s last regular employment before retirement or death was in the railroad industry. If a railroad employee or his or her survivors do not qualify for railroad retirement benefits, the RRB transfers the employee’s railroad retirement credits to SSA, where they are treated as social security credits.

- 9 -

Payroll taxes paid by railroad employers and their employees are the primary source of funding for the railroad retirement and survivor benefit programs. By law, railroad retirement taxes are coordinated with social security taxes. Employees and employers pay tier 1 taxes at the same rate as social security taxes. In addition, both employees and employers pay tier 2 taxes which are used to finance railroad retirement benefit payments over and above social security levels.

Tier 2 taxes are based on the ratio of certain asset balances to the sum of benefit payments and administrative expenses. Historically, railroad retirement taxes have been considerably higher than social security taxes.

Revenues in excess of benefit payments are invested to provide additional trust fund income, and the legislation enacted in 2001 allows for Railroad Retirement (RR) Account funds transferred to the National Railroad Retirement Investment Trust (NRRIT) to be invested in non-governmental assets, as well as in governmental securities. Funds transferred from the Social Security Equivalent Benefit (SSEB) Account to the NRRIT are allowed to be invested only in governmental securities. The legislation also established the NRRIT, whose Board of seven trustees oversees these investments. The Board of Trustees is comprised of three members selected by rail labor; three members selected by rail management; and one independent member selected by a majority of the other six members.

Another major source of income to the railroad retirement and survivor benefit program consists of transfers from the social security trust funds under a financial interchange between the two systems. The financial interchange is intended to place the social security trust funds in the same position in which they would have been had railroad employment been covered by the Social Security Act and Federal Insurance Contributions Act (FICA). In fiscal year 2010, the RRB trust funds realized a net of almost $4.0 billion, representing 43 percent of RRB financing sources (excluding transfers to/from the NRRIT and the increase in NRRIT net assets), through the financial interchange.

Other sources of income currently include revenue resulting from Federal income taxes on railroad retirement benefits (tier I, tier II, and vested dual benefits), and appropriations from general Department of the Treasury (Treasury) revenues provided after 1974 as part of a phase-out of certain vested dual benefits.

Railroad Unemployment Insurance Act

Under the RUIA, unemployment insurance benefits are paid to qualified railroad workers who are unemployed but ready, willing, and able to work and sickness insurance benefits to railroad workers who are unable to work because of illness, injury, or pregnancy. The RRB also operates a placement service to assist unemployed railroad workers in securing employment.

A new unemployment and sickness insurance benefit year begins every July 1, with eligibility generally based on railroad service and earnings in the preceding calendar year. Up to 26 weeks of normal unemployment and 26 weeks of sickness insurance benefits are payable to an individual in a benefit year. Additional extended benefits are payable for up to 13 weeks to persons with 10 or more years of service.

The railroad unemployment and sickness insurance benefit program is financed by taxes on railroad employers under an experience rating system initiated in 1991. Each employer’s payroll tax rate is determined annually by the RRB on the basis of benefit payments to the railroad’s employees.

- 10 -

Reporting Components

The RRB, as an independent agency in the executive branch of the U.S. Government, is responsible for administering the RRA and the RUIA. The financial statements include the accounts of all funds under the control of the RRB and the Office of Inspector General (OIG).

These funds consist of two administrative funds, three trust funds, two general funds, one deposit fund, six American Recovery and Reinvestment Act of 2009 (ARRA) funds, and two Worker, Homeownership and Business Assistance Act of 2009 (WHBAA) funds.

RRB Organizational Structure

The RRB is headed by three Board Members appointed by the President of the United States, with the advice and consent of the Senate. One member is appointed upon recommendation of railroad employers; one is appointed upon recommendation of railroad labor organizations; and the third, who is the Chairman, is appointed to represent the public interest. The Board Members’ terms of office are 5 years and are scheduled to expire in different years. The Chairman of the Board is Michael S. Schwartz, the Labor Member is V. M. Speakman, Jr., and the Management Member is Jerome F. Kever. The President also appoints an Inspector General for the RRB; the Inspector General is Martin J. Dickman.

The primary function of the RRB is the determination and payment of benefits under the railroad retirement and survivor and the unemployment and sickness insurance programs. To this end, the RRB employs field representatives to assist railroad personnel and their families in filing claims for benefits, examiners to adjudicate the claims, and information technology staff, equipment, and programs to maintain earnings records, calculate benefits, and process payments. The RRB also employs actuaries to predict the future income and outlays of the agency’s trust funds and accounts, statisticians and economists to provide vital data, and attorneys to interpret legislation and represent the RRB in litigation. Internal administration requires a procurement staff, a budget and accounting staff, quality assurance staff, and personnel specialists. The Inspector General employs auditors and investigators to detect waste, fraud, or abuse in the benefit programs.

The RRB’s headquarters is located at 844 North Rush Street in Chicago, Illinois. The RRB field structure is comprised of 53 offices located throughout the United States as shown on page 12.

U.S. RAILROAD RETIREMENT BOARD

OFFICE OF THE BOARD CHIEF ACTUARY*

OFFICE OF INSPECTOR Chairman, Michael S. Schwartz BUREAU OF

GENERAL

EQUAL

Labor Member, V.M. Speakman, Jr.

THE ACTUARY

Martin J. Dickman

OPPORTUNITY

Management Member, Jerome F. Kever

Frank J. Buzzi

Lynn E. Cousins

EXECUTIVE COMMITTEE

MEMBER MEMBER SENIOR EXECUTIVE MEMBER MEMBER

Kenneth P. Boehne Steven A. Bartholow OFFICER Dorothy A. Isherwood Terri S. Morgan

Henry M. Valiulis

CHIEF FINANCIAL OFFICE OF

OFFICER GENERAL COUNSEL

Steven A. Bartholow

BUREAU OF

FISCAL OFFICE OF

OPERATIONS

LEGISLATIVE

Kenneth P. Boehne

AFFAIRS

Margaret S. Lindsley

HEARINGS AND

APPEALS

Karl Blank

SECRETARY TO

THE BOARD

Beatrice E. Ezerski

* Non-voting member of the Executive Committee.

OFFICE OF

ADMINISTRATION

Henry M. Valiulis

ACQUISITION

MANAGEMENT

Paul T. Ahern

REAL PROPERTY

Scott Rush

PUBLIC AFFAIRS

Anita Rogers

HUMAN

RESOURCES

Keith B. Earley

OFFICE OF

PROGRAMS

Dorothy A. Isherwood

OPERATIONS

Robert J. Duda

POLICY AND

SYSTEMS

Ronald Russo

RESOURCE

CENTER

Janet M. Hallman

ASSESSMENT

AND TRAINING

Catherine A. Leyser

FIELD SERVICE

Martha M. Barringer

CHIEF INFORMATION

OFFICER

INFORMATION

SERVICES

Terri S. Morgan

OCTOBER 2010

The Inspector General reports administratively to the Chairman.

The Director of Equal Opportunity reports administratively to the Director of Administration and programmatically to the Board.

- 11 -

Roseville Salt Lake City

Billings

Portland

Bellevue

WASHINGTON

CALIFORNIA

NEVADA

UTAH

IDAHO

ARIZONA

NEW MEXICO

COLORADO

WYOMING

NORTH DAKOTA

MINNESOTA

WISCONSIN

ILLINOIS

INDIANA OHIO

DE

NJ

MARYLAND

PENNSYLVANIA

V.T.

N.H.

MASS.

MAINE

CONN.

NEW

Y

ORK

IOWA

MISSOURI

MICHIGAN

MICHIGAN

SOUTH DAKOTA

NEBRASKA

KANSAS

OKLAHOMA

TEXAS

MONTANA

OREGON

Spokane

Oakland

Covina

Mesa

Denver

Albuquerque

Houston

Ft. Worth

Wichita

Omaha

Des Moines

Kansas City

ARKANSAS

KENTUCKY

TENNESSEE

MISSISSIPPI ALABAMA

GEORGIA

SOUTH CAROLINA

NORTH CAROLINA

VIRGINIA

WEST

VIRGINIA

Little Rock

LOUISIANA

New Orleans

Milwaukee

Chicago

Joliet

Indianapolis Cincinnati

Cleveland

Detroit

Albany

Buffalo

Boston

Westbury

New York

Newark

Philadelphia

Scranton

Harrisburg

Altoona

Pittsburgh

Louisville

Huntington

Baltimore

Richmond

Roanoke

Decatur

St. Louis

Nashville

Birmingham

Atlanta

Charlotte

FLORIDA

Tampa

Jacksonville

Fargo

St. Paul

Duluth

U.S. RAILROAD RETIREMENT BOARD

District Office Map

LEGEND

District Office

10-10

- 12 -

- 13 -

Financial Highlights

Amounts in the RR Account not needed to pay current benefits and administrative expenses are transferred to the NRRIT whose Board of seven trustees is empowered to invest NRRIT assets in non-governmental assets, such as equities and debt, as well as in governmental securities.

Amounts in the SSEB Account not needed to pay current benefits and administrative expenses are transferred to either the RR Account or the NRRIT. Amounts transferred from the SSEB Account to the NRRIT may be used only to pay benefits or to purchase obligations that are backed by the full faith and credit of the United States.

On February 17, 2009, President Obama signed the ARRA. Under the ARRA, the RRB has two major benefit programs to administer, economic recovery payments, and extended unemployment insurance benefits. For additional information on the ARRA, see page 37.

On November 6, 2009, President Obama signed the WHBAA. The legislation authorized payment of extended unemployment insurance benefits to rail workers. For additional information on WHBAA, see page 38.

Shown on the following page are snapshots of the net position, financing sources, and benefit payments (before elimination of inter-fund transactions) for the RRB accounts. All dollar amounts are in millions.

- 14 -

Net Position, Financing Sources, and Benefit Payments (In millions)

2010 2009

NET POSITION AT SEPTEMBER 30

Social Security Equivalent Benefit Account $ 564.9 $ 577.6 Railroad Retirement Account 1/ 23,981.0 23,399.6 Railroad Retirement Administration Fund 3.6 4.2 Railroad Unemployment Insurance Trust Fund – Benefit Payments (25.2) 27.8 Administrative Expenses 8.2 8.7 Limitation on the Office of Inspector General .8 1.3 Dual Benefits Payments Account 8.3 7.2 Federal Payments to the Railroad Retirement Accounts .5 .5

American Recovery and Reinvestment Act of 2009 Railroad Unemployment Insurance Extended Benefit Payments – Recovery Act (no year dollars) 8.9 9.7 Economic Recovery Payments – Recovery Act 5.1 5.5 Administrative Expenses – Recovery Act (no year dollars) - - Administrative Expenses – Recovery Act - - Limitation on Administration – Recovery Act (no year dollars) - - Limitation on Administration – Recovery Act .7 .9

Worker, Homeownership and Business Assistance Act of 2009 Railroad Unemployment Insurance Extended Benefits Payments (no year dollars) 155.6 - Administrative Expenses, Railroad Unemployment Insurance Extended Benefit Payments - -

Total $24,712.4 $24,043.0

FINANCING SOURCES FOR FISCAL YEAR

Social Security Equivalent Benefit Account $ 6,389.4 $ 6,523.0 Railroad Retirement Account 2/ 5,054.9 2,022.1 Railroad Retirement Administration Fund 117.1 113.2 Railroad Unemployment Insurance Trust Fund – Benefit Payments 84.2 82.0 Administrative Expenses (0.5) (1.3) Limitation on the Office of Inspector General 8.5 8.2 Dual Benefits Payments Account 62.1 69.5 Federal Payments to the Railroad Retirement Accounts 3/ 467.1 321.1

American Recovery and Reinvestment Act of 2009 Railroad Unemployment Insurance Extended Benefit Payments – Recovery Act (no year dollars) .8 10.3 Economic Recovery Payments – Recovery Act .4 129.5 Administrative Expenses – Recovery Act (no year dollars) - .1 Administrative Expenses – Recovery Act - 1.4 Limitation on Administration – Recovery Act (no year dollars) - .1 Limitation on Administration – Recovery Act - 1.4

Worker, Homeownership and Business Assistance Act of 2009 Railroad Unemployment Insurance Extended Benefits Payments, (no year dollars) 19.4 - Administrative Expenses, Railroad Unemployment Insurance Extended Benefit Payments .8 -

Total $12,204.2 $ 9,280.6

1/ NRRIT-held net assets are a financing source and are included in the Railroad Retirement Account above.

2/ Change in NRRIT-held net assets is included in the Railroad Retirement Account above.

3/ Includes funds subsequently transferred to other accounts. Such inter-fund transfers are eliminated in the preparation of the consolidated statements.

- 15 -

2010 2009

BENEFIT PAYMENTS FOR FISCAL YEAR 4/

Social Security Equivalent Benefit Account $ 6,260.9 $ 6,241.5 Railroad Retirement Account 4,473.1 4,232.8 Railroad Unemployment Insurance Trust Fund – Unemployment Insurance 84.4 106.0 Sickness Insurance 51.7 48.1 Dual Benefits Payments Account 62.1 69.5

American Recovery and Reinvestment Act of 2009 Railroad Unemployment Insurance Extended Benefit Payments – Recovery Act (no year dollars) .8 10.3 Economic Recovery Payments – Recovery Act .4 129.5

Worker, Homeownership and Business Assistance Act of 2009 Railroad Unemployment Insurance Extended Benefits Payments (no year dollars) 19.4 -

Total $10,952.8 $10,837.7

4/ Net of recoveries and offsetting collections; excludes SSA benefit payments.

The RRB’s financial statements are comprised of: Balance Sheet and Statements of Net Cost, Changes in Net Position, Budgetary Resources, and Social Insurance and notes which are an integral part of the statements. We also present as required supplementary information a discussion of the actuarial outlook for the railroad retirement program and the Disaggregate of Budgetary Resources.

Comparison of Net Cost of Operations and Financing Sources

The net cost of operations for fiscal years 2010 and 2009 was $11,221.5 million and $11,119.5 million, respectively. The details of the net cost of operations by type, amount, increase or decrease, and percentage change from fiscal year 2009 to fiscal year 2010 are shown below. Additional information regarding the net cost of operations and financing sources for fiscal years 2010 and 2009 is shown on the following pages.

NET COST OF OPERATIONS

FY 2010

FY 2009

Amount of Increase

(Decrease)

Percent of Increase

(Decrease) Interest expense – Treasury borrowing $ 141.1 $ 160.2 $(19.1) (11.9) Salaries and expenses 129.4 122.5 6.9 5.6 Benefit payments – RRB 10,975.8 10,861.2 114.6 1.1 Other expenses 8.9 9.9 (1) (10.1) Subtotal 11,255.2 11,153.8 101.4 0.9 Less: Earned revenues 33.7 34.3 (.6) (1.7) Net cost of operations $11,221.5 $11,119.5 $ 102 0.9

- 16 -

Totals $11,255.2 million, excluding reimbursements and earned revenues of $33.7 million.

Totals $11,153.8 million, excluding reimbursements and earned revenues of $34.3 million.

Interest Expense $141.1 1.25%

Salaries and Expenses

$129.4 1.15%

Benefit Payments $10,975.8

97.52%

Other Expenses $8.9 0.08%

NET COST OF OPERATIONS (In millions)

FY 2010

Interest Expense $160.2 1.44%

Salaries and Expenses

$122.5 1.10%

Benefit Payments $10,861.2

97.37%

Other Expenses $9.9 0.09%

NET COST OF OPERATIONS (In millions)

- 17 -

The following table shows financing sources (excluding changes in unexpended appropriations) by type, amount, increase or decrease, and percentage change from fiscal year 2009 to fiscal year 2010.

FINANCING SOURCES

FY 2010

AMOUNT

OF

INCREASE

(DECREASE)

PERCENT

OF

INCREASE

(DECREASE)

Appropriations used $ 550.5 $ 531.8 $ 18.7 3.5

Taxes and other non-exchange revenues:

Payroll taxes 4,648.1 4,710.5 (62.4) (1.3) Interest revenue and other income 37.2 38.9 (1.7) (4.4) Carriers refunds – principal (1.0) (1.2) 0.2 16.7 Railroad Unemployment Insurance (RUI) revenue

98.1

92.8

5.3

5.7

Subtotal $ 4,782.4 $4,841.0 ($ 58.6) (1.2)

Imputed financing (amount to be provided by the Office of Personnel Management (OPM) to pay future retirement benefits to RRB employees)

8.8

8.8

0.0

0.0

Transfers in:

Financial Interchange, net 3,964.1 4,003.7 (39.6) (1.0)

NRRIT 1,989.0 1,553.0 436.0 28.1

Subtotal $ 5,953.1 $5,556.7 $ 396.4 7.1

Other:

Change in NRRIT net assets 441.5 (1,975.2) 2,416.7 122.4

Subtotal $11,736.3 $8,963.1 $2,773.2 30.9

Less: Transfers out to NRRIT 0.0 0.0 0.0 0.0 Loss Contingency (0.9) (5.0) 4.1 82.0 Subtotal (0.9) (5.0) 4.1 82.0

Total $11,735.4 $8,958.1 $2,777.3 31.0

The most significant difference between the RRB’s financial statements for fiscal year 2009 and fiscal year 2010 was the change in NRRIT net assets. The increase in NRRIT net assets of $441.5 million is due to market fluctuations during the past year. There is a section on page 20 that describes the NRRIT, and the NRRIT net assets balances for 2009 and 2010 are shown in the RRB’s Financial Section of this publication.

- 18 -

Total Financing Sources $11,736.3 million, excluding $0.9 million loss contingency.

Total Financing Sources $8,963.1 million, excluding $5 million loss contingency.

$5,953.1

$550.5

$4,782.4

$8.8

$441.5

1,000

2,000

3,000

4,000

5,000

6,000

Transfers In

Appropriations Used

Taxes and Other Non-Exchange

Revenues

Imputed Financing

Change in NRRIT Net Assets

FINANCING SOURCES (In millions)

FY 2010

$5,556.7

$531.8

$4,841.0

$8.8

($1,975.2)

(3,000.00)

(2,000.00)

(1,000.00)

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

Transfers In

Appropriations Used

Taxes and Other Non-Exchange

Revenues

Imputed Financing

Change in NRRIT Net Assets

FINANCING SOURCES (In millions)

- 19 -

Railroad Retirement Investments at Treasury

The book value of all railroad retirement investments, including accrued interest, increased to $1,299.9 million as of September 30, 2010, from $1,191.2 million on September 30, 2009 (excludes NRRIT net assets). The graph below reflects the book value of the railroad retirement investments from September 30, 2006, through September 30, 2010.

The following chart shows the portfolio of the railroad retirement investments as of September 30, 2010.

$1,203.7

$1,323.6 $1,407.3

$1,191.2

$1,299.9

$1,000.0

$1,100.0

$1,200.0

$1,300.0

$1,400.0

$1,500.0

2006 2007 2008 2009 2010

INVESTMENT BALANCES HELD AT TREASURY (AT BOOK VALUE)

AT SEPTEMBER 30, 2006 - 2010

(In millions, excluding NRRIT net assets)

RR Account $506.8 39%

SSEB

Account $793.1 61%

AT BOOK VALUE

Total $1,299.9

RAILROAD RETIREMENT INVESTMENTS HELD AT TREASURY

AS OF SEPTEMBER 30, 2010

(In millions, excluding NRRIT net assets)

- 20 -

Railroad Retirement Account

On September 30, 2010 and 2009, the book values of the RR Account investments, excluding NRRIT assets, including accrued interest, totaled $506,776,803 and $406,196,122, respectively.

The balance on September 30, 2010, consisted of $505,951,000 in 3.000 percent par value specials (with market value equal to face value) maturing on October 1, 2010, and $825,803 in accrued interest. The balance on September 30, 2009, consisted of $405,445,000 in

3.000 percent par value specials (with market value equal to face value) maturing on October 1, 2009, and $751,122 in accrued interest. Par value specials mature on the first working day of the month following the month of issue and have a yield based on the average yield of marketable Treasury notes with maturity dates at least 3 years away.

Social Security Equivalent Benefit Account

On September 30, 2010 and 2009, the book values of the SSEB Account investments, including accrued interest, totaled $793,129,608 and $784,981,660, respectively. The balance on September 30, 2010, consisted of $791,857,000 in 3.000 percent par value specials maturing on October 1, 2010, and $1,272,608 in accrued interest. The balance on September 30, 2009, consisted of $783,717,000 in 3.000 percent par value specials maturing on October 1, 2009, and $1,264,660 in accrued interest.

National Railroad Retirement Investment Trust

The NRRIT was established by the Railroad Retirement and Survivors’ Improvement Act of 2001 (RRSIA). The sole purpose of the NRRIT is to manage and invest railroad retirement assets. The NRRIT is a tax-exempt entity, independent from the Federal Government and not subject to Title 31, United States Code (USC). The NRRIT is domiciled in and subject to the laws of the District of Columbia.

The NRRIT is comprised of a Board of seven Trustees, three selected by railroad labor unions and three by railroad companies. The seventh Trustee is an independent Trustee selected by the other six. Members of the Board of Trustees are not considered officers or employees of the Government of the United States.

The RRSIA authorizes the NRRIT to invest railroad retirement assets in a diversified investment portfolio in the same manner as those of private sector retirement plans. Prior to the RRSIA, investment of railroad retirement assets was limited to U.S. Government securities.

The NRRIT and the RRB are separate entities. The RRB remains a Federal agency and continues to have full responsibility for administering the railroad retirement program, including eligibility determinations and the calculation of benefit payments. The NRRIT has no powers or authority over the administration of benefits under the railroad retirement program. Under the RRSIA, the NRRIT is required to act solely in the interest of the RRB, and through it, the participants and beneficiaries of the programs funded under the RRA. The RRSIA does not delegate any authority to the RRB with respect to day-to-day activities of the NRRIT, but the RRSIA provides that the RRB may bring a civil action to enjoin any act or practice of the NRRIT that violates the provisions of the RRSIA or to enforce any provision of the RRSIA.

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Under the RRSIA, the financial statements of the NRRIT are required to be audited annually by an independent public accountant. In addition, the NRRIT must submit an annual management report to the Congress on its operations, including a Statement of Financial Position, a Statement of Operations, a Statement of Cash Flows, a Statement on Internal Accounting and Administrative Control Systems, the independent auditor’s report, and any other information necessary to inform the Congress about the operations and financial condition of the NRRIT. A copy of the annual report must also be submitted to the President, the RRB, and the Director of

OMB.

Program, Operations, and Financial Performance and Results

During fiscal year 2010 (ended September 30, 2010), railroad retirement and survivor benefit payments totaled $10.8 billion, net of recoveries and offsetting collections. Railroad unemployment and sickness insurance benefit payments totaled $136.1 million in fiscal year 2010, net of recoveries and offsetting collections. During fiscal year 2010, the RRB also paid benefits on behalf of SSA (for which the RRB is reimbursed) amounting to $1.3 billion to about 116,000 beneficiaries.

In fiscal year 2010, the RRB continued to focus its efforts on providing excellent customer service to current and former railroad workers and their family members. Our regular workloads in fiscal year 2010 included:

Providing payments to 582,000 retirement and survivor beneficiaries.

Providing payments to 22,000 unemployment insurance beneficiaries.

Providing payments to 18,000 sickness insurance beneficiaries.

Processing 30,972 retirement, survivor, and disability applications for benefits and then determining eligibility (through May 2010).

Processing 287,950 applications and claims for unemployment and sickness insurance benefits (through May 2010).

Issuing 257,302 certificates of employee railroad service and compensation (mailed by the contractor on June 11, 2010).

During fiscal year 2010, the RRB used 43 specific program performance objectives, including several with multiple indicators, to manage and track progress in meeting its long-term strategic plan goals. These objectives were accomplished with direct appropriations of $109,073,000 for administration of the RRB. (A breakdown of administrative expenses by strategic goal is not available at the time of this report.) Agency performance with respect to the key performance indicators is covered in the following section. For most performance measures, actual full-year performance results for fiscal year 2010 were not available at the time this report was published.

For those objectives, we reported part-year performance information for fiscal year 2010, if available. We also reported actual results from prior years, as applicable.

Summary of Achievement by Strategic Goal

Strategic Goal I: Provide Excellent Customer Service. We aim to satisfy our customers’ expectations for quality service both in terms of service delivery options and levels and manner of performance. For fiscal year 2010, we expect that benefit payment accuracy rates will exceed 99 percent, and we are striving to meet or exceed the timeliness goals by year-end.

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Strategic Goal II: Serve as Responsible Stewards for Our Customers’ Trust Funds and Agency Resources. The RRB is committed to fulfilling its fiduciary responsibilities to the rail community. For fiscal year 2010, we expect to meet or exceed our performance goals.

Strategic Goals and Objectives

The RRB has a long and distinguished tradition of excellence in serving our customers, and we will strive to continue that tradition in the coming years. We have achieved high levels of accuracy and timeliness in the processing of retirement and survivor benefits, while embracing new technology, especially in areas where it can improve customer service and efficiency. We have also achieved very high scores for customer service in independent assessments of our operations related to initial railroad retirement applications, unemployment and sickness insurance benefits, survivor applications and disability applications.

The two overriding strategic issues for the upcoming planning period relate to customer service and trust fund stewardship. The service issue involves our ability to continue to meet our customers’ expectations for personal, high quality service, and our ability to position the agency to meet rising customer expectations for new and improved services in the future. The stewardship issue has multiple aspects, some of which arise from legislative changes and others which relate to our ongoing ability to meet our program integrity responsibilities and to maintain effective, efficient and secure agency operations. To effectively address these issues, we have established two strategic goals on which we will focus our efforts.

Provide excellent customer service

We aim to satisfy our customers’ expectations for quality service both in terms of service delivery options and levels and manner of performance. Our Annual Performance Budget for Fiscal Year 2010 reflects two strategic objectives that focus on the specifics of achieving this goal.

Pay benefits accurately and timely.

Provide relevant, timely, and accurate information which is easy to understand.

Serve as responsible stewards for our customers’ trust funds and agency resources

The RRB is committed to fulfilling its fiduciary responsibilities to the rail community. Our performance budget reflects four objectives that direct our focus on this goal.

Ensure that trust fund assets are projected, collected, recorded and reported appropriately.

Ensure the integrity of benefit programs.

Ensure effectiveness, efficiency, and security of operations.

Effectively carry out the responsibilities of the RRB under the RRSIA with respect to the activities of the NRRIT.

The RRB of the future will continue to be customer-focused, quality-driven, and fiscally responsible. Our overall mission and responsibilities as a Federal agency will remain unchanged, even though our organization may be smaller in terms of staff and budget resources. We will use creativity, automation and innovation to continue to deliver best-in-class service while ensuring cost-effective and efficient operations.

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Our customers will have a broad range of choices for conducting their business with the agency, including more Internet options that will allow for private, secure transactions from their homes at any time of the day. Railroad employers will be able to conduct most, if not all, of their routine transactions with the RRB through secure and efficient electronic systems. Direct customer feedback will shape our planning efforts and enhance our responsiveness. Our customer service levels will serve as a standard of excellence for the rest of the Federal community.

The agency’s internal culture will reflect a strong commitment to its employees, and a drive to ensure continual learning at all levels. Given the large percentage of employees who will be eligible for retirement in the near future, senior employees will engage in knowledge transfer and sharing as a top priority.

Our ultimate measures of success will be the sustained satisfaction level of our customers and our ability to respond to their needs and concerns.

Validation of Performance Information. The RRB has implemented comprehensive administrative procedures to ensure that reported performance information is accurate and valid. Administrative Circular RRB-2 establishes standards and assigns responsibility for collecting, documenting, validating, certifying, reporting and retaining information related to the actual performance data reported for objectives in the RRB’s Annual Performance Budget and Government Performance and Results Act (GPRA) Report.

The procedures require that reporting managers develop and maintain written procedures for:

Collecting data related to each objective, Testing and validating performance data to ensure accuracy, Retaining source documents for future reference, and Attesting to the accuracy of performance information reported.

Members of the RRB’s Planning Council review the certified performance data and attestations for completeness and identify any problems. The Planning Council also compiles the performance data for agency reports, and monitors compliance with the requirements of Administrative Circular RRB-2.

Members of the RRB’s Executive Committee review performance issues related to their areas of responsibility and assign follow-up action, as necessary. The Executive Committee also reviews and approves performance reports before releasing the drafts for approval by the Board Members.

The following begins a discussion of our key performance indicators.

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Discussion of Key Performance Indicators

The RRB has identified the following 10 key performance indicators, which represent our most important responsibilities.

Key performance indicator 1: Initial recurring retirement payment accuracy (Objective I-A-1a)

Our overall strategic goal is to achieve a railroad retirement benefit payment recurring accuracy rate of at least 99 percent on our initial processing of applications for retirement (employee, spouse and widow) benefits.

FY 2010 goal: 99.75% Our FY 2010 performance: Not available

Full-year data will be available in fiscal year 2011.

FY 2009 goal: 99.75% Our FY 2009 performance: 99.59%

We did not meet our goal. However, the performance goal was set at an approximate target level, and the deviation from that level is slight. There was no effect on overall program or activity performance.

Automation plays a key role in assuring initial benefit payment accuracy by reducing the number of erroneous payments. Automation will become more critical in this area as experienced personnel retire in the coming years.

Data definition: This is the percentage of the dollar value of initial recurring retirement benefit payments paid correctly as a result of adjudication actions performed, based on a review of a sample of cases.

Initial Retirement Payment Accuracy

98%

100%

Goal 99.00% 99.50% 99.75% 99.75%

Actual 99.82% 99.75% 99.59% N/A

FY 07 FY 08 FY 09 FY 10

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Key performance indicator 2: Unemployment insurance payment accuracy (Objective I-A-2a)

Our overall strategic goal is to achieve a railroad unemployment insurance benefit payment accuracy rate of at least 99 percent.

FY 2010 goal: 99.40% Our FY 2010 performance: 100% through the 2nd quarter

We are achieving our goal. Automation plays a key role in assuring benefit payment accuracy by reducing the number of erroneous payments.

FY 2009 goal: 99.25% Our FY 2009 performance: 98.93%

Data definition: This is the percentage of the dollar value of unemployment insurance benefit payments paid correctly as a result of adjudication actions performed, based on a review of a sample of cases.

Key performance indicator 3: Sickness insurance payment accuracy (Objective I-A-2b)

Our overall strategic goal is to achieve a railroad sickness insurance benefit payment accuracy rate of at least 99 percent.

FY 2010 goal: 99.80% Our FY 2010 performance: 99.88% through the 2nd quarter

We are achieving our goal. Automation plays a key role in assuring benefit payment accuracy by reducing the number of erroneous payments.

FY 2009 goal: 99.80% Our FY 2009 performance: 99.70%

Data definition: This is the percentage of the dollar value of sickness insurance benefit payments paid correctly as a result of adjudication actions performed, based on a review of a sample of cases.

Unemployment Insurance Payment Accuracy

(FY 10 actual is through 3/31/10)

96%

98%

100%

Goal 98.00% 99.00% 99.25% 99.40%

Actual 99.64% 99.71% 98.93% 100.00%

FY 07 FY 08 FY 09 FY 10

Sickness Insurance Payment Accuracy

(FY 10 actual is through 3/31/10.)

96%

98%

100%

Goal 98.00% 99.70% 99.80% 99.80%

Actual 100.00% 99.89% 99.70% 99.88%

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Key performance indicator 4: Timeliness of initial railroad retirement annuity payments, when advanced filed (Objective I-A-5)

FY 2010 goal: 92.75% Our FY 2010 performance: 95.46% through the 2nd quarter

We are exceeding our goal. Automation plays a key role in assuring benefit payment timeliness for this performance indicator.

FY 2009 goal: 92.75% Our FY 2009 performance: 94.86%

Data definition: This goal is included in the RRB Customer Service Plan. Prior to fiscal year 2008, the goal was stated from the customer’s perspective and attempted to measure timeliness to the point of delivery by reporting performance as the percent of retirement age and service applications for which all RRB processing was completed within 30 days, allowing 5 days to account for handling by Treasury or the U.S. Postal Service (USPS). An audit by the RRB’s OIG (05-05, dated May 17, 2005), however, found technical problems with the data, specifically, the time to voucher the case for payment was not included in the measure. Since that time, we qualified the performance report to indicate that, due to system limitations, our tracking did not include all internal processing time, but only measured to 30 days adjudicative processing time. In its audit, the RRB’s OIG also found a reporting flaw in our measurement process for third-party payment cases, which affected 2 out of 150 cases in the sample. For fiscal years before 2009, the performance level reported is inaccurate for the few cases of this type processed during the reporting period, and is measured as 30 days to the end of the adjudicative process.

In fiscal year 2008, we reworded the goal to express performance from the RRB’s perspective.

The new goal is stated in the chart above.

Effective October 1, 2008, the system problems described above were corrected allowing us to track performance for the entire internal processing time. Beginning with fiscal year 2009, there is no longer a need to qualify the measure for this objective to refer to “adjudicative processing days.” The other errors found by the OIG have also been corrected.

Due to the complexity of the system revisions, the system is not to the efficiency level we expect and the data generated still require some manual adjustment. While we are still reviewing system data and will continue to do so through fiscal year 2010, we believe that performance data reported for fiscal year 2009 and later accurately reflect the percentage of applications processed to the point of payment or denial within 35 days of the annuity beginning date, if advanced filed.

We will continue to disclose the previous problems until the point where the performance for fiscal year 2008 and earlier is no longer included in this report.

The RRB makes a decision to pay or deny a railroad retirement employee or spouse initial annuity application within 35 days of the annuity beginning date, if advanced filed. (FY 10 actual is through 3/31/10.)

85%

90%

95%

100%

Goal 92.00% 92.00% 92.75% 92.75%

Actual 92.80% 92.40% 94.86% 95.46%

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Key performance indicator 5: Timeliness of initial railroad retirement annuity payments, if not advanced filed (Objective I-A-6)

FY 2010 goal: 96.80% Our FY 2010 performance: 95.80% through the 2nd quarter

We have not yet achieved our goal. We hope to meet or exceed our goal by the end of the fiscal year.

Automation plays a key role in assuring benefit payment timeliness for this performance indicator.

FY 2009 goal: 96.80% Our FY 2009 performance: 97.00%

Data definition: This goal is included in the RRB Customer Service Plan. Prior to fiscal year 2008, the goal was stated from the customer’s perspective and attempted to measure timeliness to the point of delivery by reporting performance based on the percent of retirement age and service applications for which all RRB processing was completed within 60 days, allowing 5 days to account for handling by Treasury or USPS. An audit by the RRB’s OIG (05-05, dated May 17, 2005), however, found technical problems with the data, specifically the time to voucher the case for payment was not included in the measure. Since that time, we qualified the performance report to indicate that, due to system limitations, our tracking did not include all internal processing time, but only measured to 60 days adjudicative processing time. While the issues described in detail for Key Indicator 4 apply to these non-advanced filed cases as well, the net impact on actual performance levels was not as significant.

In fiscal year 2008, we reworded the goal to express performance from the RRB’s perspective.

The new goal is stated in the chart above.

Effective October 1, 2008, the system problems described above were corrected allowing us to track performance for the entire internal processing time. Beginning with fiscal year 2009, there is no longer a need to qualify the measure for this objective to refer to “adjudicative processing days.” The other errors found by…