he does. But the insuring of a plan-you didn't discuss that, because we are told by one group in here that if we insure plans, it is going to cost them an additional 12 percent, and yet we have had the witnesses come in that insure their plans to the last cent of their liability, and they tell me that it is cheap insurance.

These are things that are fundamental no matter how well we protect the fund. Who do we protect it for? Strengthening the fiduciary responsibiliteis certainly it is the laudable course to follow. It is the right thing to do. But in the end who are we protecting them for? Are we saying to the trustee that you are protecting these funds, as you said a minute ago, solely and exclusively as the IRS says for the employee? Or are you protecting them without regard to who finally ends up holding the funds?

Now I am willing to work and I am sure my committee is. We are willing to delay the reporting of a vesting, funding, benefit insurance bill. I will, however, want to be very sure before coming out with a bill that only requires fiduciary responsibilities

Maybe we will have to have a very elementary law at first. But I believe we must, Mr. Secretary, do something about assuring the moneys are there, asuring that the individuals get their share, whatever the contract is. And if we can do that, I think we can have very good legislation.

Mr. PUCINSKI. Mr. Chairman, would the Secretary care to comment on a Federal pension insurance corporation which would insure these pensions? We have had testimony here and counsel tells me that about 1 percent of the pension funds just fail, go bankrupt or whatever the problem is.

If that is true and we are talking about $130 billion and $260 billion by the end of this decade, conceivably we really ought to be talking about some sort of Federal insurance program to guarantee the existence of the plan. Would you have any thought on that, Mr. Secretary?

Secretary SHULTZ. I think it is an interesting idea and there are a variety of purposes that might be served by some unit that operated at the Federal level to act with respect to certain kinds of problems looking at private pension plans. I am not ready to say that I think this or that or the other is something we should do, but I think it is definitely one of the things that ought to be looked at pretty hard.

Mr. PUCINSKI. Wouldn't that in itself provide a better degree of policing as it does with the FDIC in the banks and others where the insurance corporation, which I would envision would be under the Labor Department, really would become the sort of examining arm to make sure these things are properly managed in order to protect the insurance fund, the trust fund insurance?

Secretary SHULTZ. Well, there are, I think, quite a lot of different functions that you could conceive of being performed at the Federal level somewhere. Whether each of them should be performed there, whether they should be grouped together, whether they should all be in one agency or disbursed around somewhat, I think these are all open questions as far as I would say.

Mr. PUCINSKI. In the bill we are cosponsoring, the Chairman with myself and others, we do have this sort of program. Could we get some form of statement from you at some future date on this concept and perhaps you will want to get behind it. I think it would help us a good deal if we could get your thinking on it. Secretary SHULTZ. It is certainly one of the things we are working on and whether we can bring ourselves to a conclusion as an administration on that topic within your time frame remains to be seen, but we will try.

Mr. PUCINSKI. Another idea that has been kicked around is on vesting. When a worker gets laid off or when he severs his relationship, there is some suggestion that perhaps that money ought to be transferred to the Social Security and the Social Security ought to then credit his account and have it reflected at some future date in his benefits when he retires and starts drawing Social Security.

I wonder if you would want to give some consideration to that. Secretary SHULTZ. There are three questions involved there. The first is whether or not he does have a right to some money. Now that goes to the question of vesting in one way or another. So that is an independent question. Somebody may get laid off, but he has no pension rights. There isn't vesting in the plan or he has not worked there long enough or what-have-you, so that is one question.

Then you have the question of, I think, the Chairman, one of the things he was referring to was that people being as mobile as they are in our economy, let's say you had, well, lots of plans that do have a considerable vesting provision in them, so let's say some went from one place to another. Say he worked for four or five employers during the course of his work life and in each of them he accumulated a pension right.

Querie: Is it or isn't it a good idea to, so to speak, put all those things into some one place and accumulate them? I think that is a legitimate kind of problem. It is sort of a problem of administrative nicety and also it has to do with his ability to follow up and receive the benefits that he has earned during the course of his employment.

I had a third point, but I forgt what it was, so I will drop it. Mr. PUCINSKI. When Mr. Reuther was before the committee the question was asked why these pension funds don't help the President in his efforts in trying to meet some of the domestic needs of the country and yet hold down inflation by making some of their funds available at lower interest rates?

We have $130 billion in funds and we need hospitals and we need low-cost housing and Mr. Reuther suggested this would be a great idea except that to a great extent these pension funds are handled by bankers and bankers are not going to compete with each other on providing lower interest rates out of pension loans against higher interest rates at banks.

Do you think that perhaps the pension funds ought to play a little more social role in trying to meet the domestic needs of the country?

Secretary SHULTZ. I don't think the banker competition question is the central question involved there. The central question is that as we have been talking about here and as you are all concerned about, to see to it that the pension funds are involved for the benefit of the beneficiaries. They are the ones.

Now if you say should we use this money to do things at lower interest rates or lower rates of return than they could get elsewhere, then I think you have to ask yourself are you operating in the interest of the beneficiaries? Now it seems to me that if you just took gross amounts of these funds and threw them into projects that didn't yield any rate of return, that you would be violating your fiduciary responsibility.

But at the same time I think we all recognize that to a certain extent life is a matter of degree and there are all kinds of worthwhile projects. In fact, it may be of particular interest to the beneficiary group and maybe some work in those areas would be perfectly appropriate.

At the same time I would suggest that the terms of the plan represent a way in which the beneficiaries express to the trustees how they want to have that plan managed and if the beneficiaries by the terms of the plan say that we think some proportion of these funds ought to be invested in X kind of project, then the trustees are operating in complete regard of their fiduciary responsibility in doing this.

Mr. PUCINSKI. Do you think it would be wise, then, to try to find some language that would protect the managers of these and yet give them the fluidity, if for instance they want to invest in low-cost housing for their senior citizen members or they want to invest in hospital construction. It does not make much sense to me for a hospital to borrow money at 12 percent and charge $85 a day for a room for the hospital care that the union is paying.

I would like to get your thinking on this perhaps in a memorandum or something as to whether or not we could have some language to protect the managers against some charge of violating their fiduciary responsibility, but yet give them that latitude, if indeed they want to do it at 6 percent instead of 8 percent.

Mr. DENT. I thank you gentlemen and I am sure the Secretary would like to respond to that. The second bells have rung and we have to leave. We have a rather serious bill up before us this afternoon.

Secretary SHULTZ. Suppose I submit an answer in writing to that. Mr. DENT. I would suggest you do so and I might give you some information that might help you. There is a very concerted drive on the part of some of the labor interests who have large pension funds to go into the area of housing loans and loans for students. However, it would have to be permitted in the law that it will be a proper action for the trustees to take and would be for the benefit of the whole membership.

Thank you very kindly, Mr. Secretary and your staff, for coming here this morning.

(Information requested follows:)

STATEMENT ON USE OF PRIVATE WELFARE AND PENSION FUNDS FOR

SOCIALLY DESIRABLE PROJECTS

I share the concern of those persons who seek sources of money for low cost housing and other socially desirable construction projects at low interest rates. However, care must be taken to ensure that an effort to this end does not run counter to the purposes of employee benefit plans, which are also socially desirable.

The Administration bill (H.R. 16462 and S. 3580) leaves wide discretion to those in charge of employee benefit funds to make investments. The basic rule is that the investment must be prudent. Moreover, there is already language in the bill under which investments may be made in socially desirable construction without the prudent man being applicable. Under section 14 (c) (7), the parties to the establishment of a benefit fund may include a specific direction to so invest, in which case a fiduciary so directed may do so without incurring liability under the prudent rule.

Where social needs and sound public policy indicate a need for more capital investment in certain areas, I think an effort should be made to that kind of investment attractive to all investors. The Government should not single out employee pension funds from other investment sources to bear a larger burden of riskier investments and low yields such as would be required by section 511 of H.R. 7495. To do so could place the capital needs of socially desirable building projects in competition with the need to improve the income levels for retired workers.

The next hearing of the committee will be on April 21. The witnesses will be Mr. E. S. Willis, manager of employee benefits, General Electric Co., speaking for the Chamber of Commerce of the United States; Mr. George W. Apperson, president, Local 689, Amalgamated Transit Union, Washington, D.C., accompanied by Mr. John M. Elliott, of the International Union.

(Whereupon, at 12:35 p.m. the subcommittee recessed, to reconvene on Tuesday, April 21, 1970.)