with a dual pension system. Other nations, limited numbers, yes, have for this particular reason developed a single pension system. And in one instance which we have been told about, which we hope to investigate more thoroughly, they absorb the private pension system into a combination private and governmental pension system. Somewhere along the line someone is going to have to do something about this.

Mr. IMPELLIZERI. Certainly, if we don't-if you have a segment in our society, that is a large segment that is covered by the basic social security, and a large segment on this side covered by social security and good private pension benefits, you are going to have a split work force. This lower half getting further away from the upper half in terms of what they can buy, what they can hope for; and the separation between the low-level or poor employee and the more affluent employee will become more obvious. We will have a two-level worker society here which I dread to see happen.

Now, the only thing that I can say at this moment, Congressman, is that if we don't make an effort to expand this private pension system to the little employer, to the lowpaid worker, then the alternative may very well be that our private pension system should be Government controlled and perhaps put with the Social Security System. This will ultimately happen if it doesn't work.

Mr. DENT. I look at the practical solution to problems and the practical roadblocks to these solutions. First of all, we cannot, unless we take governmental action forcing the coverage of all workers by governmental action. And if we do that, then, we are right back into social security by another name. If we don't do that, there will be no coverage because of the eligible workers in the country, those in the lowest strata of earning in our society, are, in the main, unorganized; and it is in this group that the injustices are developing.

I see in the future, and not too distant future, a situation that may be as serious as our present problems between the underprivileged workers in the country, the massive group of the blacks that have been out of the high-paying jobs. We are trying to resolve that situation and bring them into the mainstream of American economics. What is going to happen when we reach the time when the retirees are competing for apartments, clothing and food, but one has two pensions and the other has only one pension, but they both must pay the same prices?

Remember that the private pension was originally conceived after and during World War II to retain employees and add to a supplemental income for social security.

Look at the way some of these funds operate. We have a fund that now pays $75 a month. They set aside an amount based on the hourly earnings rate of each employee. Yet the hourly worker who is making $4 an hour gets $74 a month at the end of 65 years of age and 20 years of service, with the same amount of $75 a month going to a person making $1.25, rather now it is $1.60 an hour, and maybe $2 an hour in some instances. Now, this isn't a pension. It is what the employer says it is in many instances, it is a gratuity. Because in all reasonably sound pension systems, you get your pension, especially executives, get a pension based upon their income. This is something that is bothering some of us as to what are these pension

systems. Are they really a pension system or are they a supplement sop to keep workers in line. As one witness said, they spent $1,600 to train a worker and therefore they put him in a pension system so he won't move thereby forcing them to train another worker at that $1,600 expense. Therefore, they keep them there for the rest of their lives. They said if they want to get a pension they have to stay with us until they reach age 65. You know, they had bondage years ago, but they used leg irons.

Mr. IMPELLIZERI. In this day and age, anyone who thinks of a pension in terms of retaining workers on the payroll is way off base, because that is what my paper is all about this morning, that it is deferred wages. We are mobile, highly mobile, workers. We have in this country-somewhere recently I saw Department of Labor statistics showing a turnover of 25,000 to 50,000 workers a day. We are a quick-moving society for many reasons. As you mentioned, Mr. Chairman, companies fail. Not only do employees leave, but companies fail, companies move. They not only move to other States, but they move to other countries. The bondage that the employer hopes to hold the employees in through his pension plan does not seem to hold true in reverse. When the employer leaves, he holds nothing for the employee. He simply puts his hat on and goes south or goes to Japan or goes to Puerto Rico or elsewhere. He has no qualms about leaving.

Mr. DENT. It was the increasing incidences of this kind of situation that sparked the studies. There have been increasing incidences where a conglomerate takes over a going concern and completely severs all employees from the payroll. Then they pick up those that have reached their vesting rights, set aside enough money in reserve to meet the requirements for paying a vested interest of the employee who had reached that vested right, and take all the rest of the money in the pension fund as a surplus, actuarial surplus. But the actuarial figures have never been tested by any governmental agency.

I signed my contract for retirement pensions many years ago. I am going to get, I think, $66 a month out of one, and $24 out of another. But neither has a cost-of-living clause.

Mr. IMPELLIZERI. No cost-of-living attached there.

Mr. DENT. They don't give me anything like that.

Social Security benefit payments are completely out of line with any actuarially based figure. We have added medicare, we have added all kinds of disability payments, we have reduced age limits, we have increased the amount of the benefit paid to the beneficiary. Yet we have approximately $50 billion to the credit of the Social Security fund. But we have never invested that money anywhere near a prudent investor's rule. In most instances we have given out money at 22 or 3 percent.

Let me give you a figure that will astound any person who has worked in this area. The private pension system is unbelievably unsound when you consider the amount of money paid in and the amount of money paid out. The Member's Pension System started in 1946, investing after 5 years of service, and made payments after the first 2 years of the pension system. The Government was to pay 50 percent of the payment and the Members of Congress, 50 percent.

In the first 10 years, the Members of Congress paid their full payment in and the Government did not pay the first 912 years, but only 6 months. In the next 10 years both the Government and the Congressmen paid into the fund. There is no greater turnover, I don't think, in any employment as there is in Congress, because most Congressmen don't leave voluntarily. And yet at the end of 20 years, we are paying 256 Members of Congress or their widows, increased payments for costof living to where a person who retired in 1951, by 1955 was receiving double the entitlement that he received when he retired in 1951. We had at the end of 20 years, $25 million to our credit. And our money was never put out at more than 3 percent at any time and most of the time at 24 and 22 and less, and yet that payment alone is sufficient to meet the requirements of the Congressional Pension System, even at the new $42,500 salary, for the next 7 years.

This is an unsound economic system that Congress should have been looking at 20 years ago. But at the moment it is one of a serious thing before us.

The entire Federal Government's pension system for the employees of the Civil Service has something like $52 million of credit. The insurance companies tell us we are not actuarially sound, but we are paying. And if there is any industry in the country that will be here when all the rest are gone, it might be the Government.

Mr. IMPELLIZERI. That is right.

Mr. DENT. Many industries have obligations greater than the Federal Government has to its employees.

I come back to one question: Do you think that it is time for Congress to make a decision as to whether there ought to be any private pension systems in the United States or whether it should be integrated into one system and everybody will participate and their funds will be guaranteed as they are now in Social Security.

Mr. IMPELLIZERI. I think we should make an effort to see if the present system will work.

Mr. DENT. And your idea is vesting will make it work?

Mr. IMPELLIZERI. It will go a long way to make it work, plus putting the private pension system in competent hands that will know. What areas should be developed, that will give this huge problem first priority, not only in vesting but in other areas. But the main problem today is one of vesting; people do not vest. We are in chaos. We should have done something before.

But now we have to look for a way out of this chaos. I believe very firmly in the private pension system. I believe we should make every effort to make it work.

Mr. DENT. In most of the pension systems, the worker and the executives are tied in to the same pool, same fund. Do you think that ought to be allowed when the payouts are so much greater for one than the other.

Mr. IMPELLIZERI. In many funds the facts of life are that under our present vesting system, what happens is that only the hierarchy, the higher level employees (and we are all employees, even if you are the corporation president you are an employee), only the hierarchy levels have a financial interest great enough to retain them in

corporations and, therefore, they are most likely to stay behind and collect pensions. All others seem to be in a turnstile situation where they are in and out and help to finance the hierarchy who are there to stay.

So we must find a way to have these people vest so that if they vest say after 5 years they will be able to collect little pieces of pensions wherever they go, because you cannot stop labor movement. We are in movement today; we are going to continue to be in movement, and we will move even more rapidly in this moon age. New industries are being born this minute, as I talk, and other industries are dying. An employer can open his door tomorrow morning and find that they are not buying his product and he is out, and he many have 2,000 employees who are out. We had better have vesting in the pension plans.

Mr. DENT. Would you say that you can have vesting without portability?

Mr. IMPELLIZERI. The ultimate is portability. I would say that portability scares people. It doesn't scare me. You can have portability without calling it vesting. You can have portability only if it is tied to meaningful vesting.

Mr. DENT. I didn't ask the question that way. I ask whether you could have vesting without portability?

Mr. IMPELLIZERI. Yes, certainly.

Mr. DENT. What happens to the worker, that you have just covered in your remarks, who works for a company and it does go out of business? For instance, let's get an actual case history of a plant where about 180-some odd people are working and the plant is going completely out of business after being in existence some 80 years. The greater number of those employees are over 40, and the greater percentage of that group is over 45. Where do they go to work? Even if they had vesting, where do they go for the next 20 years?

Mr. IMPELLIZERI. These are the men who are in no-man's land. But if they had vesting-you are speaking of a plant being terminated-if you have reasonable vesting when a plant terminates, provision is made for the payment of a vested interest as the number one priority. Whatever assets are there will be used to pay the vested interests.

Now, if this plant hasn't get vesting, then they are not obligated to pay anyone 10 cents.

Mr. DENT. That is, of course, the major part of the plants today. Mr. IMPELLIZERI. Then you have the other situation when a plant doesn't terminate, as such, but they have four plants and they close three. The other two-thirds of the employees are gone. You are funded on the basis of, let's say, 6,000 employees and suddenly you find you only have 2,000. Now you have some legal lights who can tell you that since there is no vesting in this plan it is suddenly overfunded and perhaps in an overfunded plan the legal lights can find a way to revert that money back to the company.

Mr. DENT. This is done, of course.

Now, the second question, then I will turn it over to my colleagues as we have another witness this morning. The second question is, can you have vestings without funding?

Mr. IMPELLIZERI. It is meaningless. It is really meaningless.
Mr. DENT. What is?

Mr. IMPELLIZERI. Vesting without funding.

It is a promise to pay, but if I don't have money in the bank it is meaningless.

Mr. DENT. Would you say, then, that accepting your premise, that we have, to make this work that the three prime targets have to be vesting, funding, and portability?

Mr. IMPELLIZERI. That is correct, Mr. Chairman.

Mr. DENT. Well, you can't have any of it without insuring the fund. It so happens that all persons who handle the funds, I won't say they are dishonest, but I would say they use bad judgment in their selection of investments.

The staff brought up a problem which, of course, we discovered that is common in many instances where a worker does leave a plant and may have a vesting and may have a deferred pension right that he could collect at age 65 or some designated age, but he starts to work for another employer who has no pension plan whatsoever. There he finds at the retirement age that he is below the level of income of the fellow who stayed at the original plant. It brings up so many problems that we find ourselves in difficulty trying to

Mr. IMPELLIZERI. It is a problem that has arisen over the years, and not much has been done until you gentlemen decided to do something about it.

Mr. DENT. I can assure you that it won't be

easy.

I have been at it for 28 years. When we are talking about $118 billion of invested funds, it will never be easy. I might not live long enough to scratch the surface. But we will try.

Mr. IMPELLIZERI. You are in a difficult area, and I commend you for trying.

Mr. DENT. Mr. Hawkins, have you any observations or questions? Mr. HAWKINS. Mr. Impellizeri, the Chairman explores these areas so thoroughly that he leaves very little.

However, in view of the statement and in answer to one of his questions concerning whether or not the idea of private pension funds should be continued, I think you answered that with vesting and putting the control in competent hands that they should be continued.

I am not too convinced that the answer takes into consideration all of the factors involved. There are other factors to be considered which you, yourself, mentioned, that is the difficulties of maintaining some sort of a system of central funding and also the honesty of the individuals in this particular field.

Is there any real reason why we should continue private pension funds? Why not estimate the amount of contributions which are being made by those participating and liberalize Social Security to that extent and then discontinue completely the entire idea or actually prohibit private pension funds on the basis that it is almost beyond any possible control?

In other words, what is the justification, now that we do have a Social Security system that approaches this need for security in old age? Why have a private pension fund at all?