William N. Ernzen Helen C. Ernzen Fred Gamauf Ruth O. Gamauf Arthur R. Fortier Loretta Fortier v. United States

In this tax refund action, railroad retirees and their spouses appeal the district court’s grant of summary judgment in favor of the United States. Appellants contend that income taxes imposed on the Tier II portion of their railroad retirement benefits violate equal protection.

HISTORICAL PERSPECTIVE

In 1937, the federal old age insurance program was bifurcated into the social security and railroad retirement programs. Under this system, railroad workers paid more payroll tax and received greater retirement benefits than workers covered under the social security system. Wallers v. United States, 847 F.2d 1279, 1280-81 (7th Cir.1988).

Since 1974, benefits received by railroad retirees have been divided into two programs, identified as Tier I and Tier II benefits. Tier I benefits are essentially the equivalent of social security benefits. Tier I benefits are distributed in the same amount as social security benefits. Tier I benefits are also taxed at the same rate and in the same manner as social security benefits.

A Tier II benefit “represents an amount in addition to what a Social Security recipient in similar circumstances would receive. It is thus analogous to a private…