DISCLOSURE AND FIDUCIARY STANDARDS

Section 8(a) of the Welfare and Pension Plans Disclosure Act, as amended, (29 U.S.C. 307) provides that copies of the description of the plan and latest annual report will be available for examination by the participant in the principal office of the plan, and that the administrator shall furnish a copy of the description of the plan and summary of the annual report to all participants requesting them in writing.

The Act does not, however, specify any standards or requirements relative to the information contained in the description of the plan, nor does it require that financial reports be certified that they accurately present the financial status of the plan as of the reporting date. The Subcommittee sought to learn the extent of the administrator's communication with plan participants regarding the distribution of plan booklets, provisions for appeal of administrators' actions related to benefits, and provisions for reliable financial disclosure of pension

funds.

Table 5-1 indicates that nine out of ten of the pension plans applicable to approximately 95 percent of the participants provide booklets to them explaining the terms, conditions, and procedures of the plan. Both large and small companies provide booklets to participants; almost 90 percent of those plans with under 1,000 participants provided booklets, and over 95 percent of those plans with over 10,000 participants provided booklets .Although it is encouraging to note that most administrators provide such booklets, this does not indicate to what extent the provisions of the pension plans are understood by the participants.

Table 5-2 summarizes the distribution of plans containing provisions which give participants an opportunity to request a hearing on claims for benefits. The table indicates that approximately 55 percent of the plans applicable to a like percentage of participants provide an opportunity to request a hearing. The table also indicates that regardless of the size of the plans, over 50 percent of the plans in each size category give participants an opportunity to request hearings on claims. In only three out of ten plans, applicable to about 35 percent of the participants, is there a requirement for the administrator to furnish the claimants a written denial of claims (see Table 5-3).

Table 5-4 indicates that approximately 30 percent of the plans applicable to over 45 percent of the participants provide for appeal procedures upon denial of benefit claims. It should be noted that 44 percent of the plans with 10,000 or more participants, applicable to 55 percent of the participants in this category, provide for appeal procedures, whereas only 30 percent of the smaller plans with less that 1,000 participants, applicable to one-third of the participants in this category, provide for such recourse.

Nearly 40 percent of the plans, applicable to over one-half of the participants, have formal restrictions on the investment of plan assets (see Table 5-5). But, in plans with 5,000 or more participants, 60

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percent of the plans, applicable to the same percentage of participants, have formal restrictions regarding investments.

The Subcommittee examined the P-1 questionnaires to ascertain what formal restrictions for investing pension plan assets were imposed on the plan administrators. It was found that in many cases the plan administrator reported the "prudent man rule" as a formal restriction of their investment practices. "Prudent man rule" is defined differently in State trust laws, but it generally refers to the administrator's handling of plan funds in the interest of the participants as a prudent man would act in a similar situation and under like conditions.

Some plan administrators reported prohibitions or restrictions related to investment in the employer's own securities as a formal restriction on investing.

Almost one-half of the plans applicable to 70 percent of the participants provide for an annual audit by an independent licensed or certified public accountant (see Table 5-6). Three-quarters of the plans with 10,000 or more participants, applicable to 85 percent of the participants in this category, provide for an annual audit compared with 45 percent of the plans with less than 1,000 participants, applicable to one-half of the participants in this category.

TABLE 5-1.-ANALYSIS OF PLAN ADMINISTRATORS THAT PROVIDE BOOKLETS TO EACH PARTICIPANT EXPLAINING TERMS, CONDITIONS, AND PROCEDURES RELATIVE TO PRIVATE PENSION PLANS, BY PLAN AND BY PARTICIPANT

Note: The sum of individual items may not equal totals because of rounding.

TABLE 5-2.-ANALYSIS OF PRIVATE PENSION PLANS THAT PROVIDE PARTICIPANTS WITH AN OPPORTUNITY TO REQUEST A HEARING ON CLAIMS FOR BENEFITS, BY PLAN AND BY PARTICIPANT

Note: The sum of individual items may not equal totals because of rounding.

TABLE 5-3.-ANALYSIS OF PRIVATE PENSION PLANS THAT REQUIRE WRITTEN DENIAL OF CLAIMS BY PLAN AND BY PARTICIPANT

Note: The sum of individual items may not equal totals because of rounding.

TABLE 5-4-ANALYSIS OF PRIVATE PENSION PLANS THAT PROVIDE FOR APPEAL PROCEDURES WITH RESPECT TO DENIAL OF BENEFIT CLAIMS, BY PLAN AND BY PARTICIPANT

Note: The sum of individual items may not equal totals because of rounding.

TABLE 5-5.-ANALYSIS OF PRIVATE PENSION PLANS THAT HAVE FORMAL RESTRICTIONS PERTAINING TO INVESTMENT OF PENSION PLAN ASSETS, BY PLAN AND BY PARTICIPANT

Note: The sum of individual items may not equal totals because of rounding.

TABLE 5-6-ANALYSIS OF PRIVATE PENSION PLANS THAT REQUIRE ANNUAL AUDITS BY AN INDEPENDENT LICENSED OR CERTIFIED PUBLIC ACCOUNTANT, BY PLAN AND BY PARTICIPANT

Note The sum of individual items may not equal totals because of rounding.

CHARACTERISTICS OF PRIVATE PENSION PLANS

Private pension plans are characterized by great diversity in every dimension. Some industries are more completely covered than others. Administration of plans takes many forms, as do provisions for funding plans and provisions for retirement benefits. Several of these dimensions have been examined in the sections of this report dealing with benefits, vesting, funding, and fiduciary and disclosure standards. The P-1 questionnaire included information on other dimensions of private pension plans in order to give a fuller picture of the characteristics of private pension plans at the time of the study. Some of this information is summarized in Tables 6-1 through 6-8.

Nearly all private pension plans meet Internal Revenue Code qualifications for tax exemption (Internal Revenue Code, Section 401. See Table 6-1). About fifty-five percent of all plans studied, covering 60 percent of the employees, are in the manufacturing industries. A small percentage of the plans studied was included in the wholesale, retail trade and service industries (see Table 6-2).

Three-fourths of the private pension plans, applicable to 55 percent of the employees, are single-employer plans (see Table 6-3). However, about 70 percent of the largest plans (enrolling 10,000 or more workers), covering more than three-fourths of the participants, are multiemployer plans.

The provisions of some pension plans are subject to negotiations with unions. Over thirty-five percent of all plans, applicable to more than three-fifths of the employees, are collectively-bargained plans (see Table 6-4). This high percentage of participants is a result of the fact that most large plans are collectively-bargained plans.

Private pension plans vary in the coverage of different groups of a firm's employees. Table 6-5 indicates that 40 percent of the plans, applicable to 40 percent of the employees, covered all employees of a firm. Further review of the P-1 questionnaires indicated that many of the responses listed as covering "other" employees should have been reported as plans covering all employees. About one-fourth of the plans, applicable to almost 30 percent of the employees, were established exclusively for hourly employees, and about one-fifth of the plans, applicable to a like percentage of employees, were established exclusively for salaried employees.

Table 6-6 classifies plans by type of administrator. For the purposes of this study, the administrator of a plan is defined as the person or group that is designated by the pension agreement to execute the pension provisions, including all rules and regulations of the pension plan. Sixty-one percent of the plans, applicable to 60 percent of the employees, were administered by the employer. Twenty percent of the plans, applicable to about one-fourth of the employees, are administered jointly by employers and employees. Only two percent of the plans are administered exclusively by unions.