Redemption of Railroad Retirement Account Investments

Pursuant to a congressional request, GAO reviewed the Department of the Treasury's unilateral sale of securities from the Railroad Retirement Account (RRA), specifically whether: (1) the sale of securities was legal without Railroad Retirement Board approval; and (2) the sale was in excess of what was required to make benefit payments.

GAO noted that: (1) the Railroad Retirement Board is principally responsible for making investment decisions with regard to RRA; and (2) Treasury's role is essentially that of an agent of the Board, with no authority to invest or disinvest RRA funds except in accordance with the instructions provided by the Board. GAO found that: (1) Treasury redeemed about $445 million in RRA securities without Board approval and in excess of what was needed to make benefit payments; (2) Treasury accelerated redemptions of RRA securities for $99.5 million required for benefit payments; (3) the overredemption of RRA securities directly contravened the Board's determination that RRA should be fully invested; and (4) after the Board notified Treasury that these actions were unauthorized transactions, Treasury officials quickly corrected the errors with no resultant loss to RRA principal or interest. Treasury stated that: (1) the overredemption of RRA securities was not an intentional violation of the Board's investment authority, but was the result of a clerical error caused by the debt-ceiling crisis; and (2) the financial transactions were taken as part of a broader plan to accelerate November redemptions for several federal trust funds. GAO also found that: (1) the accelerated redemption of amounts required to cover benefit payments resulted in a net loss to RRA of approximately $160,000 in interest; and (2) the Secretary could not unilaterally accelerate the redemption of securities to generate funds for reasons unrelated to check processing requirements.