which is a group benefit, which may or may not redound to the benefit of the individual employee, and that which he gets as cash.

Do you understand?

Mr. LUMB. I understand you, but I think you are overemphasizing the group aspect of the pension situation, and underemphasizing the negotiation, the maturing process, as I call it.

Let me just take a minute, for example, to talk about something you know about, the steel situation.

Mr. DENT. That is right.

Mr. LUMB. When we put in the pension, in 1950, the main obligation that we took on, and the main purpose of the steel workers, was to get a pension plan established. They weren't interested one bit in funding or vesting or anything like that. They wanted X cents per hour put in a pension fund, so that we could establish a pension fund.

Then, as time went on, we increased the pension fund X cents per hour at each negotiation, and then, as time went on, we added different benefits, a combination, 15 years, age 40, for a vesting provision for people who were terminating.

We added a disability benefit. We added a widow's benefit.

In the last negotiation, we added one which I think we made a mistake in doing, and that is a 30-year early retirement benefit, which creates two careers, and is rising up to haunt us now.

This is the maturing process that has been going on in all these plans, in other industries, and the workers and the union leaders, and, God bless them, they are pretty savvy in this area of pension benefits and costs.

Mr. DENT. I am glad you said that, because they take the opposite view that you are taking.

Mr. LUMB. What, that they are not savvy?

Mr. DENT. You said they are savvy, but they take a completely opposite view. They are for insurance and funding.

Mr. LUMB. We haven't run into that. They are for coverage, mostly.

Mr. DENT. I would suggest that you cover these hearings.

Mr. LUMB. We will cover them. I do negotiating, too.

Mr. DENT. I know you do.

Mr. LUMB. So the unions themselves, by and large, don't feel that what they bargain for in the contract, in terms of X cents of the package that goes into insurance is money misspent or money that their members are not going to ultimately get in the form of some kind of pension benefit.

Mr. DENT. Mr. Lumb, you said it was written in 1950?

Mr. LUMB. Yes.

Mr. DENT. Would you say that a person entering a steel plant in 1950 had more assurance of being able to stay in that employment for 25 or 30 or 40 years than he has now going into that industry? Mr. LUMB. Well, I don't know.

I don't get the relevance between that and a pension.

We have a lot of competition now that we didn't have in 1950.

Mr. DENT. The advent of conglomerates has changed the situation. greatly, and we have to look at that new situation.

If it is true that one employer sold his plant, and sold his entire operation, and another new employer took it over, disbanded the corporation, and got a windfall of $7 million out of the pension fund, if that is true, isn't it also true that that might occur more often in the coming 10-year decade!

What we are trying to say here is that vesting wasn't even discussed when you sat down. You yourself said that in the first, original negotiations

Mr. LUMB. This is right.

Mr. DENT (continuing). All they were looking for was a pension plan. It was something that was not a common labor benefit until World War II came, and it was forced on as a fringe benefit.

Mr. LUMB. I might add it isn't seriously being discussed now, except in the case of some multiple-employer plans.

Mr. DENT. Well, the demand for this legislation didn't come from me. A demand came from workers that something be done about the loss of benefits.

Mr. LUMB. I am familiar, Mr. Chairman, with the cases that have been reported before this subcommittee, and some of which you have responded to. Certainly I can say those cases are very unfortunate for the individuals involved, but many of those cases are examples of lack of communications, not knowing what the benefits were.

In many of them, also, to take care of the situation would require vesting provisions and portability provisions which we think really don't justify the cost. In other words, more people would be hurt by taking care of the few than would benefit.

Mr. DENT. Let's take an example.

Mr. LUMB. One of the cases was a 15-year vesting provision, and the guy didn't have 15 years. You proposed 10 years. Well, is 10 years right, or is 9 years, or 5 years, or where? It all costs money.

How many people are you going to benefit? We are trying to benefit the greatest number.

Mr. DENT. Let's take the seafarer. Let's take the man who has to be employed for a number of years, 25 I think, to vest. He works 15 years, and then he isn't called, although he is standing in a makeup line, and is ready to be called, but he isnt' picked to do a thing for 2 years. Under the contract automatically all of his previous service is disregarded, and he starts all over again.

In the Zenith Corp. they have the 2-year provision. They severed labor connections with 3,000 employees already this year, and we asked them, "How do you protect these employees' pension rights?" They say, "Well, if within 2 years after they left us, we call them back into employment, then they will take up their benefits where they left off, and continue on toward retirement."

But I said, "If you are building a plant in Taiwan for 4,000 employees to produce the very products that these 3,000 were producing, and you laid these people off, because you couldn't compete, how do you expect to compete with the added introduction into the market of your own cheaper cost product?"

They said, "That is another problem."

I said, "What do you do with the money set aside for these employees who are not vested because they only worked 20 years,

and the requirement is 25? Maybe they are 60 years of age, and the pension starts at 65. What do you do with these funds?"

They said, "They go into the insurance policy for those who are left."

What happens to an employer, which we have an example of, who took 1,100 employees whom he had in the plants, closed the plants, opened up somewhere else, and did not employ these 1,100, but the money that these persons contributed went into the fund for the 1,100 new employees?

We are getting into a new situation.

Zenith has made no provision for paying anything to any of the 3.000 employees that haven't their rights vested and they will not be called back. I don't see how they can be.

Do you think that this committee, as part of this legislation, ought to consider the effects of such an operation?

Mr. LUMB. Frankly, I don't know enough about the facts in that particular situation.

Mr. DENT. I wish you would look into it. They are probably one of your clients somewhere in Pennsylvania.

Mr. LUMB. Well, I am a kept lawyer.

Mr. DENT. I understand that. Go ahead.

Mr. LUMB. It looks to me as though what you are saying here is that the union in question didn't negotiate the proper kind of a pension agreement with the company, and it seems to me that the position that you are taking, with all due respect, and, of course, you and I have discussed these things before, is that you are getting at the bargaining table.

Mr. DENT. No. You, sir, said that when you sat down and drafted your original contract, all the worker was looking for was a pension. Mr. LUMB. Right.

Mr. DENT. He didn't know anything about funding or vesting. I know that in 90 percent of the pension funds that we have looked at, the employee had no concept of these things whatsoever. All he felt was that, "When I get to be so old I am going to have so much coming in." He knew nothing about the internal workings of a pension plan.

Mr. LUMB. Let me put it this way. Let's go back to 1950 and let's see exactly what happened at this time.

President Truman appointed a board, and the board recommended that we put a dime in a pension fund.

Mr. DENT. I remember.

Mr. LUMB. Right.

Now, if they had recommended that we set up a pension fund, and that we require vesting, as is proposed in H.R. 1045, at the end of 10 years, and that we would require funding over a 25-year period, they wouldn't be talking about putting 10 cents in the fund. They would be talking more like putting 50 cents or a dollar into the fund, and the union wanted the other moneys to go into the paycheck, and not into the pension fund.

It gets back to the question that I said before, it all costs money, and it is a question of where you are going to put it, and who is going to get the most benefit out of it, and I think that the collective-bargaining process has done a pretty darn good job so far in

providing pension benefits and added benefits and getting into the area of vesting and funding, which this committee has now gone into.

I think, with all good intentions, to help an additional few, we think there is the potential cost of hurting a lot more people than you are going to benefit.

Mr. Escн. Mr. Chairman.
Mr. DENT. Mr. Esch.

Mr. ESCH. I would like to get into some questions here on some other matters.

Mr. Lumb, I think the intent of the provision on vesting is to take the function of vesting out of the hands of the collective bargaining area, and make it a Government edict. I believe this is what we are going to do if we prescribe vesting. Is that correct?

Mr. LUMB. Right, and it will cost money.

Mr. ESCH. Furthermore, what we are really saying is that we are forcing the members of the collective-bargaining unit, in this case the employees, to be responsible to a higher degree to their fellow employees in this area at the expense of other priorities which they may now think are more important.

Am I correct that so far unions have not insisted on a 10-year vesting provision-and the reason they have not done so is that they think there are higher priorities in their collective bargaining?

Mr. LUMB. This is right; and if this committee recommends legislation, if legislation is passed requiring, for example, 10-year vesting, to us it will mean that Congress has put a chip on the bargaining table in the next negotiations, and we are going to have to negotiate from that chip that is on the table.

Mr. Houck. It appears this morning to go much beyond that, because of the cases you have cited, Mr. Chairman.

I fail to see how situations of that kind could be resolved without writing not only the vesting provision of pension plans, but every provision, what constitutes service, and how much service there is, and so forth, and really what you are doing, if you write all the provisions of a pension plan, is simply writing another Social Security Act.

It is the Social Security Act that is designed, I assume, to take care of this.

Mr. Escu. If we could go into this in a little more detail, what you are really saying is that, to this point, pensions have been a matter of collective bargaining and that the degree to which Government restrictions or requirements usurp collective bargaining is the degree to which we will tend toward a national pension plan, irrespective of the individuality and the diversification needed within a given industry.

Mr. HOUCH. That is correct.

Mr. ESCH. Can we go on in terms of portability? So far, it has been management's responsibility to encourage stability of employment. One way that they encourage stability of employment is through the vesting concept. So far, labor unions have said, "Yes, we want to encourage stability, and vesting is one provision."

The effects of this plan might well be to encourage mobility within the industry-would you agree with that? And this naturally would be to the detriment of industry.

Mr. LUMB. To some degree, but we think mobility is really determined much more importantly by an offer of a different wage structure and location, weather, and all kinds of things like that.

I think pensions and other fringe benefits are so universally accepted today that you have to discount the effects of the mobility or immobility argument.

We have not addressed ourselves, incidentally, Congressman Esch, to the portability question, but, if you want something on portability, we will be glad to file a supplementary statement, because we have written something on it.

Mr. EscH. Mr. Chairman, I would request the permission that that be sumitted at this point in the record.

Mr. DENT. Without objection.

Mr. LUMB. We will submit it within the course of the next 24 hours.

Mr. DENT. At this point, to follow the testimony.

(The statement referred to follows:)

SUPPLEMENTARY STATEMENT OF H. C. LUMB, REPRESENTING THE
NATIONAL ASSOCIATION OF MANUFACTURERS

SUMMARY OF NAM POSITION ON PORTABILITY

Portability is a term having many meanings, depending on the user. Many use the term interchangeably with the term vesting. Portability generally means that, upon termination of employment by an employee with vested benefits, assets equal to the value of his vested pension would be transferred to another pension plan, to a government fund, or to a central clearing house. In other words, vesting and portability are synonomous except that with portability the value of vested benefits are transferred to a different fund.

In addition to the fact that the portability proposal must assume mandatory vesting, there are many other reasons why portability, even on a voluntary basis, would be undesirable.

Portability would ultimately require rigid regulation of private pension plans, describing incidents of funding, investment practices, actuarial assumptions and methods, and perhaps even uniform benefits.

Also, portability would create serious investment problems and would interfere with sound investment policies, because an employer might be required at any time to transfer funds out of his plan to another plan or to a central fund. It would be necessary to have funds invested in securities readily convertible to cash and thereby forego the consideration of long-term yield, which helps to reduce the costs of benefits or making higher benefits possible. No suggestion has been made which would overcome technical difficulties such as determining the present value of a vested pension transferred to another fund whose earning experience and actuarial liabilities will inevitably be different. Portability would force an employer to allocate funds to meet the portability obligations for his short-service employees who leave and this could adversely affect long-service employees who stay with him to retirement by reducing their retirement security and the funds available for them.

Portability would also duplicate record keeping and thereby add greatly to administrative cost.

The need for portability is dubious at best-even if a workable scheme could be developed. A more practical approach would involve giving the employee a statement of his rights on termination of employment with proper follow-up communication at normal retirement age.

Mr. Escн. Also, I was very much interested in your recommendations on improvements of the legislation as contained in your first few pages. I was interested especially in terms of disclosure. You have indicated that there should be more disclosure, but also that we should not have undue paperwork on the part of industry or management.