I have written the book which you have mentioned; it is now in its second edition. That was the work of almost 10 years research and covers the subject in its conceptual nature. What are fringe benefits; what kind of income is this to the worker; what is it to the employer?

I am presently at work on another book.

My statement today considers the proposed legislation that you have before you from the point of view of the working man and working woman.

You might think that, in their view, this legislation would be highly desirable because it provides for vesting, funding, reinsurance, and other pension plan protections. But it is not. The working man is very little different today from what he was back in history, and he has always been indifferent to or suspicious of benefits which his employer has found it advantageous to provide him. In such a skeptical mood, he is not easily misled. The private pension system is not his system.

I have examined the arguments in favor of the legislation in light of working people's traditional-and their present-attitudes toward such benefits as pensions. These arguments imply that the worker has been cheated out of something that is rightfully his, that is, out of his pension "wages" for past service. They imply that he has been misled into believing he will one day receive a pension he will, in fact, not receive. They say that the private pension system has "glaring deficiencies" which the federal govern

ment must correct.

Assuming that we do not regulate in the private sphere without evidence of abuse or wrongdoing, what has been the workers' experience and understanding of the private pension system? Has he been cheated, misled, deficient in pension coverage?

I want to make three points here that answer those three questions.

The wages idea is a mistaken notion. He has not been cheated out of something that is his.

Second, he is much more sophisticated than many people think and he has not been misled. He knows what is in his pension plan. I will go more into that.

Third, is it the proper job of this Congress to provide him if he is deficient in pension coverage, to provide it in private pension plans?

Pension plans, along with other employee benefits, first became noticeably common in the prosperous 1920's. Most of them vanished in the Depression of the 1930's and some even during the 1920's. The recession of 1921 took some plans and, as the 1920's wore on. employers found others did not yield them sufficient benefits and they abandoned them. The worker learned in this early experience that employee benefits might be fine when times were good or as long as the employer believed they increased production, but he could not rely upon them.

The attitude of distrust was apparent to the employers who complained in the management literature of the day:

"They are hostile to it as they are to all paternalism," or they said that the benefit plan "probably helps but employees seem to

think it is due them." or that others "would prefer an equivalent raise in rate of pay."

An organized employer commented, "Under agreement with the union, that organization wishes all privileges converted into pay and placed in the worker's envelope."

Illustrative of the union disinterest in employee benefits was a mid-1920's case in which the union sought and won, through arbitration, the abandonment of a vacation plan in the Chicago clothing industry. The impartial chairman said, "The theory of the union is that workers want their reward in the pay envelope."

These partial quotes are taken from my book. They are fragments. Mr. HAWKINS. Is it possible to have a copy of that book to which you are referring?

Mr. LIPPMAN. I have one here.

Mrs. ALLEN. I also brought an extra copy.

Mr. HAWKINS. I was wondering if we should make notations.
Thank you.

Mrs. ALLEN. Even in 1941 a paid vacation plan was still a management plot to some. When mine operators granted a week off for vacation, 91,000 miners called it a lockout and milled around the pitheads demanding that they be allowed to work. Sixteen hundred of them stormed the Pennsylvania State Unemployment Compensation Bureau office to file claims for unemployment compensation even after it was explained to them that this was a paid vacation negotiated for them by their union.

In World War II. despite strong union opposition, wages were frozen for the duration of the war. Feeling the pressures of full employment, the tripartite War Labor Board offered benefits "on the fringe of wages"-and that is the origin of the termin lieu of wage increases.

Unable to beat the "Little Steel Formula," the unions reluctantly accepted fringe benefits as the only thing they could get, although throughout the war they kept up steady pressure for payments in lieu of the benefits wherever they could.

In the postwar period, freed from the wage freeze, workers and their unions immediately went back to their traditional preference for wages and sought their social gains in legislation. However, both their "inflationary" wage demands and their political action came under attack; and by the second round of postwar bargaining, 1947, the unions were accepting the package settlements which have characterized bargaining ever since; and so, health and welfare plans proliferated and the "communistic" national health insurance was dropped. Private pension plans arose and improvements in social security became little more than routine demands to keep up with the cost of living. Unions did not have the political power they had possessed in the 1930's.

As in the 1920's, in the postwar period there was much experimentation with a variety of employee benefit plans. Some benefits were tried and dropped. Others were expanded in coverage and in benefits. The fringes multiplied at such a rate that sometimes a worker could not enumerate all the benefits he had, let alone keep track of their terms. But it was not all that important to him either.

He knew that it was his wages, his basic rate per hour, that he primarily relied upon. These are protected by law. No law guarantees his fringe benefits, nor does even his union contract. He may or may not find it enforceable in the courts. After all, a company could go bankrupt and he didn't even need to read the Supreme Court decisions-he only needed to look around him over the years to know that he was unlikely ever to see any of the money in the benefit fund, except what he himself had put into it out of his wages. He understood that his union argued that fringe benefits were his "wages" for past service wherever this argument would carry weight and it usually did with third parties. But he also understood that the employer was not interested in giving benefits to a person who was no longer to be his employee. The argument that fringe benefits are wages has been the subject of an entire book. Even though you have had witnesses saying the wage idea is the new meaning of pensions, it is an old argument. It is used when third parties are involved because it implies that, if the benefit is called wages, it is something he worked for and should get. Everybody wants a person to get what he worked for.

It actually is a phony argument because it is not his wages until it is paid him or is vested in his name, backed up by law. Even the Supreme Court has held that a benefit may be justly due him under the Bankruptcy Act and still not be his wages.

So this wages argument I have found to be used at every turn to make it look as if somebody was denied something that is rightfully his. You have had testimony saying that.

Employers are well aware of the workers' attitude toward employee benefits and they keep fighting it, just as they did in the 1920's.

In 1967 Business Week reported, "Employee attitudes toward benefits, ranging from confusion and lethargy, to 'they-owe-it-to-usanyway.' are being attacked with a battery of booklets, pamphlets, pay envelope stuffers, and company newspaper articles."

A management writer on benefits recently observed, "the value of fringes to employees may not be self-evident. Often, information or even a 'selling' job is necessary. Otherwise the tendency is for the employees to forget benefits that do not show up as spendable income. in their regular pay checks." The Bureau of National Affairs did a land-office business selling its movie "Cash on the Barrel Head" to companies for showing their employees the value of the fringes. It also showed the workers who cared most about the employee benefits, if they had any doubts.

The wage preference, too, is also acknowledged in the management literature, now as in the 1920's. For example, "Even when profits justify such free-wheeling gratuities, all of which cost money, employers are often discouraged at how completely they are disregarded when demands are made for wage increases," it is said, and "some working people would rather have a little extra money in their pockets than protection against hazards which must be considered normal and probable.'

Professor Merton C. Bernstein has found a similar preference where workers were given a choice between cash and a pension benefit. In this book, "The Future of Private Pensions," he says:

All of the evidence available points to the strong inclination of separating employees, offered the choice between the return of their contributions in cash plus interest and leaving them in the plan and thereby gaining a vested right to the employer's contribution as well, to elect the immediate cash return.

Are workers misled into expecting a pension at age 65? If you put a media mike in front of a man's face and ask if he is outraged that his company has gone out of business and left him stranded without a pension, of course he will say, "Yes."

There has not been much media attention, except perhaps locally, to most of the over 10,000 plans that have gone out of business in the last 15 years, but workers know about them. Such things do not have to be played up in the press for the word to get around and the lesson to be learned. Although he might appear ignorant of the provisions of his plan, the workers know from experience and from looking about them that they and the majority they work with probably won't be there in 10 years. He doesn't have to get a report from the Bureau of Labor Statistics to know that the chance of his getting a pension out of the fund is pretty slim. There is a tendency to feel that he doesn't know this. He knows it from his first-hand experience and he bases his judg ments on that. He is not misled. He knows enough to know whether he has something to worry about.

Are the unions misrepresenting their members on pensions? The unions have been notably disinterested in more vesting. The Bureau of Labor Statistics commented on the "slow pace at which vesting provisions have been extended," in making a comparison of 1967 plans with those in effect during 1962-63, reporting that the number of workers in plans with vesting increased only from 59 percent to 63 percent during that 5-year period. Do the proponents of this legislation have evidence that the unions in so bargaining are not accurately representing the desires of the members? If this is the free choice of the parties, where is the evidence that the government should require vesting? What workers are demanding these protections? Is there a question of their not having enough bargaining power and the Congress must come in and assist them to get something they can't win or something they don't want?

Has the employer been guilty of any wrongdoing, abuse, or deception in his adoption of pension plans voluntarily, where no union is in sight? An examination of the four main reasons employers unilaterally institute fringe benefits, including pensions explains a great deal about the workers' attitude toward these benefits. It also explains why the private fringe benefit movement is strictly a management movement, though its progress may be made in the name of the workers. All of these four reasons are reasons the employees know very well.

So advantageous were fringe benefits to employers in the postWorld War II years to date, that if there had been no unions at all, there would still have been a fringe benefit movement.

Management's first reason was one they had always had: To increase productivity. Pensions, along with other benefits, became an important means of attracting and keeping labor to-these are quotes from some of their statements-"help to stabilize the work

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force," to "create job satisfaction and inspire employees to greater productivity," or because it "gives employees a sense of security." Again, it was echo from the management literature of the twenties. The New Jersey Supreme Court said in one case, "The trust indenture represents a hard-headed business device to attract and hold employees." Most employers believed, according to the surveys by the National Industrial Conference Board and Business Management, that they got their money's worth from providing these benefits. By offering pensions as a reward to the few for very long service, the company could, for the least cost, provide incentive to the many to stay with the company longer than they otherwise would have. To grant pensions to just anyone who stayed even 5 years, say, was not the idea. That converted the benefit into little more than a cash bonus and was insufficient help in reducing turnover.

The pension or other benefit has to be of limited coverage, from the employers' point of view, both to enhance the reward and incentive and to get the most for his money. The use of trust funds enable the employer to minimize the cost if he can retain money in the fund. For a given level of benefits, an employer may be able to reduce his future contributions into the fund if he can avoid withdrawals, as by having terminating employees forfeit what had been paid into the fund for them. It is, of course, to the financial advantage of the employer to keep all vesting provisions to a mini

mum.

But even where a plan is vested, there are several other reasons the money may stay in the fund. For employees who work just over the minimum period for vesting of pension credits for a number of different employees during a lifetime period, there is substantial chance that they may lose their earlier records and never collect.

Employers go out of business, banks and insurance companies change their names, and other events prevent collection after the 20 or more years to retirement. Even for those who do collect their pensions, given a period of rising prices, the allowance so many years later is a relatively smaller proportion of the fund. Many of the workers who contribute to a fund on a matching basis will, upon leaving, elect to take their own contributions and leave the employer contributions in the fund where it reverts to the employer's credit.

If, on these monies in the fund, the earnings are higher than was estimated a common occurrence in a period of rising interest rates, since rate projections will always be cautiously estimated-this, too, adds to the fund. If fringe benefits do reduce turnover, or any other factor does, that also results in more money in the fund than was expected and may reduce future employer contributions for a given benefit level.

As one management writer expressed this first reason:

If fringe payments are "properly handled" they can be turned into investments that bring a rich return in the form of a more efficient, more cooperative and more stable work force.

This purpose for the fringe benefits was no secret from the employee. He has always known these benefits as gratuities.