national railroad retirement investment trust
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National railroad retirement investment trust

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To help finance these programmatic changes, the legislation also established the NRRIT , 5 which was authorized to receive assets from the Railroad Retirement account and invest them in a diversified market portfolio rather than in Treasury bonds NRRIT a. The proposal's designers expected that nominal annual equity returns would be 2 percentage points higher than the existing bond investments—that is, 8 percent versus 6 percent House Transportation and Infrastructure Committee ; Romig Prior to the passage of this legislation, critics raised concerns about the potential dangers of centralized equity investment.

As the bill was under consideration, the executive branch also voiced its dissatisfaction. Lawrence Lindsey, director of the president's National Economic Council, wrote a letter to Congress stating the administration's strong opposition to having a federal retirement program invest in the stock market. I think there have to be protections for the railroad worker to be sure the Government doesn't direct the investments to benefit some interests other than the worker.

There needs to be some firewall between the investment committee and the Government" RPC In establishing the NRRIT , legislators created a variety of organizational mechanisms designed to mitigate the types of problems that critics expected. As Romig notes in her analysis of the NRRIT 's investment practices, Congress explicitly structured the Trust to try to ensure that the program's operations and investments would be free of political interference.

The rest of this article explores these management and governance components. The act states that the NRRIT "is not a department, agency, or instrumentality of the Government of the United States" and establishes the organization as subject to the rules governing trusts that apply in the District of Columbia, not those at the federal level NRRIT b. When given the opportunity to bring the NRRIT within the purview of government entities, Congress has explicitly demonstrated its desire to maintain the existing separation.

Because Congress established the NRRIT to fund expanded benefits, legislators charged the program with maximizing returns to achieve this goal House Transportation and Infrastructure Committee Importantly, the fiduciary responsibilities of ERISA have been interpreted as categorizing social investment objectives—one of the core reflections of political influence—as "collateral benefits," to be considered only when a proposed investment's risk-and-return profile is at least equivalent to the best available alternative Doyle The performance of other public pension funds demonstrates the role mandates can play in setting real-world investment practices.

Each of the seven members of the Board of Trustees serves a 3-year term. Beyond the representation requirements, the legislation also establishes professional requirements for the trustees, mandating that they have "experience and expertise in the management of financial investments and pension plans" NRRIT b. Congressional records demonstrate that the diverse structure of the NRRIT 's Board of Trustees was considered an important protection against political interference.

As the bill was being debated in the House of Representatives, its sponsor, Don Young R - AK , singled out the Board of Trustees' diversified membership structure as critical to preventing political interference. This point was echoed by Representative Jerry Weller R - IL , who argued that the seven-member board would make certain that "any possible implication of a government role in investing is eliminated" US Congress The NRRIT 's Board of Trustees, in consultation with investment experts, establishes the guidelines used to direct the fund's investment decisions.

The NRRIT 's first set of investment guidelines echoed their mandate to focus exclusively on returns, outlining their foremost objectives as being " i to ensure the timely and certain payments of benefits of eligible railroad retirement plan participants and beneficiaries, and ii to achieve a long term rate-of-return on assets sufficient to enhance the financial strength of the Railroad Retirement System" NRRIT Fixed-income assets were later added through the Lehman Brothers Aggregate index.

The Trustees suggested that passive management was required during the early stages of the program because of the lower oversight requirement and lower administrative costs NRRIT As the program has matured, the NRRIT has introduced specific, separately managed, nonindexed equity holdings. US equities constitute the plurality of the asset class targets, with non- US equities and US fixed-income investments representing the second and third largest allocations, respectively NRRIT c.

The Trust's investment policies also address the issue of corporate control to help mitigate concerns about the influence the NRRIT could have as a single large investor. Adding to this general guidance, the NRRIT 's investment guidelines mandate that none of the private investment managers employed by the Trust can control more than 10 percent of the program's assets Romig It is subject to oversight primarily through its Board of Trustees' obligation to submit an annual management report to Congress, which it also provides to the president, the RRB , and the Director of the Office of Management and Budget OMB.

The RRSIA requires that the report contain statements of financial position, operations, and cash flows; a statement on internal accounting and administrative control systems; an independent auditor's report on the Trust's financial statements; and any other comments and information necessary to inform Congress about the operations and financial condition of the Trust NRRIT b. The NRRIT submits the management report to the aforementioned entities and posts the report online for public viewing.

These methods of oversight provide another role for government entities in monitoring the NRRIT , without offering any direct mode of control. Beyond reviewing financial and management reports, the act gives the RRB additional oversight authority by allowing it to bring lawsuits against the NRRIT for two reasons:. To date, the RRB has not invoked this authority; however, the RRB 's OIG suggests that the current audit process may be inadequate for identifying the full range of potential problems that would necessitate legal action RRB The OIG argues that in addition to the existing financial auditing, the NRRIT should be subject to performance audits, which Szymendera notes would be used to analyze "program effectiveness, economy and efficiency, internal control, and compliance with the law.

However, the role played by any single governance component in keeping the NRRIT independent and apolitical is difficult to quantify based on existing records. Although program performance can be seen as showing that the management constructs established by Congress to guard against political interference have succeeded, it may also be that their ability to withstand such challenges has not yet been sufficiently tested. As the program matures, continued study and analysis will be necessary.

The NRRIT is an appealing case study for any policymaker or theorist examining trust fund investment because of the programmatic similarities between the Railroad Retirement system and Social Security. Foremost is that both are federal-level defined-benefit retirement programs which alleviates concerns about the limited applicability of assessing political risk by analyzing a defined-contribution pension model such as the Thrift Savings Plan. However, one should be careful not to overstate the likeness between the programs in this regard.

Although the Railroad Retirement system is primarily a defined-benefit program, the portion of its assets placed in diversified investments through the NRRIT largely funds tier II benefits. Because tier II benefits are designed to replicate a private pension rather than Social Security, there may be greater willingness—and a more compelling precedent—to invest them in nongovernment equities. No program will ever serve as a perfect analog for Social Security; but as policymakers continue to analyze potential solutions for Social Security's projected funding shortfall, program comparisons can provide useful information.

Examining the five governance components of the NRRIT legal status, mandate, governing board characteristics, investment policy, and oversight provides valuable insight into the management structures that would need to be considered if Social Security were to adopt centralized investment in the private market. Although Clinton's proposal was never adopted, theorists and policymakers have continued to discuss the option. Proponents also posit greater individual control and ownership as reasons for individual rather than collective investment.

Kaiser Family Foundation, and Harvard University's Kennedy School of Government analyzed respondents' perceptions of a proposal to centrally invest Social Security's assets and found that 71 percent believed that financial decisions would be inherently politicized under such a policy. Some people have suggested that the federal government set up an independent commission to decide how to invest a portion of Social Security funds in the stock market.

If such a commission were formed Do you think the commission would remain independent and try to make the best investments for retirees, or. Do you think the investment decisions by the commission would increasingly be made for political reasons rather than in the best interests of retirees? However, in addition to avoiding politicization, the question of whether the NRRIT has succeeded in its stated goals depends on the program's financial returns.

Since beginning operations in , the NRRIT has experienced periods of both gain and loss coinciding with general market performance, but given the relatively short period that the NRRIT has existed, a definitive statement about the financial success or failure of the program would likely be premature. The difference between projected returns on government bonds and private securities can be seen as the cost investors are willing to pay in order to bear the additional risk of holding private securities instead of government bonds.

Thus, adjusted for the additional risk associated with private securities, the expected returns on private securities are the same as those on government securities. Therefore, CBO projects returns to NRRIT 's investments using a risk-free rate, equivalent to the government's borrowing rate, and thus shows no net budgetary changes as a result of those investments" CBO This requirement is discussed in further detail in the section on oversight.

OIG argues that "an annual financial statement audit is not adequate to support the RRB 's enforcement responsibility because such audits are not intended to provide information about all areas of risk that could indicate the need for enforcement action" RRB , i.

The Canada Pension Investment Board Act declares that the Board is "not an agent of Her Majesty" and that "directors, officers, employees and agents of the Board are not part of the federal public administration" Department of Justice Canada Oversight of the National Railroad Retirement Investment Trust Trust includes both regular reporting and communications with the Railroad Retirement Board Board , and periodic performance audits that the Trust has opted to commission; however, no written requirement for such audits exists.

The Trust's mandatory annual management report includes financial and descriptive information, including a discussion of the evolution, current status and performance of the Trust's investment portfolio and administrative costs, including investment manager fees. The Trust has also commissioned four external performance audits since its creation—the first in and the most recent in These reviews have encompassed a wide range of issues, including the accuracy of monthly reports, compliance with Trust investment manager hiring policies, processes to ensure accuracy of financial recordkeeping and internal controls, adequacy of due diligence procedures, and the role of non-traditional investments.

Performance audit practices of comparable entities can differ from the Trust in scope and frequency. The large majority of state pension plans and two federal programs GAO reviewed that manage investment assets are subject to performance audits that can be initiated and conducted by an external entity, and some of these audits have addressed issues Trust-commissioned audits have not included.

Forty-two of the 50 state plans GAO contacted are subject to performance audits that can be initiated and conducted by an external auditor, such as state Auditors General or equivalent, or by offices of internal audit. In some cases, the external auditor reviews the plan annually, while in others, plans are audited less frequently.

Both federal programs—the Pension Benefit Guaranty Corporation's single-employer insurance program and the Thrift Savings Plan—are also subject to externally initiated and conducted performance audits. State and federal audits varied in subject and scope, and in some cases, examined issues that Trust-commissioned reviews have not yet included, such as ethics and conflict of interest policies.

Experts told GAO that Trust performance audit practices are comparable to those of large private sector plans governed by the Employee Retirement Income Security Act of

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Current Connection in Railroad Retirement

The National Railroad Retirement Investment Trust (NRRIT, or "the Trust") was established pursuant to Section of the Railroad Retirement and Survivor's. NRRIT Annual Management Reports ; , PDF logo FY Appendices ( MB). The National Railroad Retirement Investment Trust was established pursuant to Section of the Railroad Retirement and Survivor's Improvement Act of