Mrs. MINK. The reason for these questions is I would like to know to what extent these 25,000 workers who suffer as a result of terminations of their plans and who ultimately lose their pension benefits, to what extent does this problem support the bill which we have before the committee in a sense of directing our attention to strengthening the management? Are you supporting your legislation because of these 25,000 workers who each year lose their pension protections and which therefore justifies strengthening of the fiduciary role of those who manage these funds to alleviate this problem, or are we talking about two different things? Secretary SHULTZ. I think the answer is mixed. The fiduciary standards will help with this problem and at the same time in the early part of my testimony I tried to suggest at least an awareness of the fact that there are other problems that go beyond the bill that we presented and which we are working on and concerned about and suggests the nature of some of those problems. Mrs. MINK. How many workers in the calendar year 1969 were prejudiced, or lost pension rights, or lost pension benefits because of the laxity of fiduciary responsibility under existing law? What I am trying to settle in my own mind is whether the facts which you have gathered as a result of existing law give rise to your recommendations for this legislation, or is it just a general feeling that we ought to tighten up the law? Secretary SHULTZ. We have given in the appendix examples, you might say, of types of problems that trouble us. Mrs. MINK. Have those troubles been the ones that have resulted in workers losing their pension benefits or are they just administrative problems that come across your desk which suggest that perhaps changes ought to be made in the law? I think these are two different things. Secretary SHULTZ. Yes, the phrase "losing pension benefits," I think that is well expressed and there are all sorts of reasons why a person might lose pension benefits. Notice I didn't say "rights" and you didn't say "right." A person might lose benefits because of imprudent management of the funds and we are trying to deal with that kind of a problem. A person might lose benefits because the person did not stay employed long enough, whether there is vesting or not, to develop a right to that pension benefit. So that is another reason why a person might lose. It is the individual behavior given the structure of the plan and so on, so there are a lot of different kinds of problems involved in this. If your question is beyond the examples, can we quantify the number of people affected by, let's say, the lack of fiduciary standards and the lack of ability to vest fully, and the lack of information about what is going on not only to us, but to the beneficiaries? That is a very hard number for us to come by and I don't know whether you can do anything better with it or not. We do think that these are problems and that they have sufficient magnitude to merit legislation. Mr. DENT. Will the gentlelady yield? Mrs. MINK. Yes. Mr. DENT. It might help you to know in our hearings and our investigations we find that the greater number of benefits that are lost are lost because of the strict requirements in the pension agreements and not by lack of fiduciary responsibility or an intelligent approach to the investment of the money. The criteria that has been established is different in each fund and a great number of them have been written to deny the pension rather than to grant it. Sometimes it has been done by collusion. This is the most serious thing. We have such things as vesting criteria that is written that only one out of about 187 in one employment can ever qualify in one particular company. These kinds of conditions are causing our deep concern. The most serious thing, Mrs. Mink, is that a person may work for 18 years for an employer and then through no fault of his own or desire of his own he is severed from that particular job and then he has to go to another job and he can't live long enough to become qualified for a pension under the subsequent employer and he did not qualify under the previous plan. These are the losses that are tragic. It is not the fault of the worker. We have to make up our minds one way or the other between both the administration, this committee and the Congress, whether this is a deferred wage or whether it is a gratuity. If we could ever decide that and get to a common ground on it, then we can write law. Unless we can do that, we can never write law. Secretary SHULTZ. I think if I may, Mr. Chairman, those are important points, but it goes beyond that. If you take this question of vesting and just assume that you have some constant stream of dollars or some constant cost you are going to put into the plan and that is, let's say, a decision by collective bargaining, we are going to divide it this way between current benefits and deferred benefits, then you can take that stream of dollars and you can say we are going to have a high benefit for those who stay to retirement or we are going to have a lower benefit for people who stay some given number of years after which they are vested, we are going to have an even lower benefit if we have immediate full vesting. And those are choices that you have to make. I think the question that the committee has to ask itself, and we have been trying to ask ourselves, is what is the right place to make that choice? Is it the Congress for a plan in some place? Is it group of people as a whole, or can we devise a system which gives a greater measure of individual choice in this picture? I think we can devise the latter kind of a system, although I can hear very little discussion of the plan that has attraction to me. But I think it is a darned hard problem and one to approach carefully. Mrs. MINK. I have a couple of other questions. With respect to the reports that are required to be filed under existing law, I am told that because of the lack of personnel that the 1969 reports are still not available for public inspection, is this correct? Secretary SHULTZ. It may very well be. Mr. USERY. We have-I knew we had received most of the reports, but they have not all been filed and that is the only reason they have not been Mrs. MINK. What is the explanation given on the phone if they are not yet processed? What processing is required before the public can be entitled to receive, to have an opportunity to inspect the report? Mr. USERY. When we receive the report, we first check it for any deficiency, if all the information is contained therein. Sometimes there is considerable correspondence with the plan and as soon as we get all the information on the forms, then it is public information and then it is ready to be seen. Mrs. MINK. When do you expect that the 1969 returns will be available generally for public inspection? Mr. USERY. We are working on them now to try to get them ready as soon as possible. Any exact date I do not know, but I hope they will be ready very shortly. Mrs. MINK. I am also informed that in requesting the 1968 reports, that parties were advised that these were not available. Is there an explanation why the 1968 reports would not be available for public inspection? Mr. USERY. They should be available for public inspection and I think they are. I know of no reason why they are not. We may not have a particular one if one was asked for, it may not be available. But generally they are available. Mrs. MINK. Will the additional reporting requirements under this bill require additional personnel? Mr. USERY. Yes, ma'am, it certainly would, very definitely. Mr. USERY. We have made some estimates. I do not have them with me today. It would depend on, first, how the bill comes out. Mrs. MINK. Assuming it was in the present form. Mr. USERY. I do not think we have made the actual estimates on the total number of people it would take. Secretary SHULTZ. We could submit some estimates for the records. (Information requested follows:) Secretary SHULTZ. I would like to add a point on this business of availability of information. It is one thing to say that you must file with the Department of Labor, and then if you want to find out something that is disclosed, you can go to the Department and get it. That is all right, and we continue that and strengthen that. But we go beyond that in this bill and say that you as an individual perticipant in the plan ought to have the right to request information from the plan and get it yourself as an individual. Mrs. MINK. I would certainly concur with that, because I don't see any point in filing volumes and volumes, 167,000 reports, if the beneficiaries do not have access to them to determine exactly what their plan consists of and what benefits they might receive. On page 24 the bill on line 13, you have a reference there to civil actions that might be instituted. I wondered if you could explain exactly what that provision means beginning with the full sentence on line 13, "In any action brought under section 9(e) by a participant or beneficiary, the jurisdiction of the district court shall be subject to section 331 of title 28." What is that provision? Mr. SILBERMAN. A $10,000 jurisdictional limit, Mrs. Mink. Mrs. MINK. A $10,000 jurisdictional limit, meaning what? Mr. SILBERMAN. Under 1331 you recall that Federal jurisdiction is limited, Federal district court jurisdiction is limited generally to two concepts, diversity and amount. And although diversity doesn't apply here of course, because you have a Federal question, the $10,000 amount would still apply. However, the beneficiary could bring an action in a State court, too. Now under the scheme the Secretary is notified of any action brought and can remove it to the Federal district court at will. Mrs. MINK. Are there any assurances or security which the beneficiary of the participants must make to the court upon filing a civil action? Secretary SHULTZ. It depends on the kind of action that he brings, Mrs. Mink. If he brings an action for his own interest, for his own rights under the plan, or because of a violation of the administrator or trustees of the plan, obligations under section 8 to disclose information, why, then he doesn't have to. On the other hand, if he brings an action as a representative of a class for relief to redress a breach of fiduciary responsibility, he has to conform with the provisions of rule 23 of the Rules of Civil Procedures. As you may recall, there are various provisions to assure the court that the action brought is really in the interest of all of the members of the class. Mrs. MINK. And this proof has to be made to the court for an independent finding before the suit will be entertained? Mr. SILBERMAN. You provide under rule 23 the court has to make a preliminary finding of that, yes. Mrs. MINK. There is no requirement for the deposit of any security to insure such a finding, to insure a positive finding on behalf of the plaintiff in this case? Mr. SILBERMAN. It is up to the court. The court can require the payment for reasonable attorneys' fees. Mrs. MINK. Is that existing law or is it provided in this bill? Mr. SILBERMAN. It is specifically provided in this bill, but it is like many existing statutes. Mrs. MINK. On page 27 on line 8, you have the phrase "under the circumstances then prevailing." I wonder if you could explain what you meant by that. This is with respect to the prudent man rule in establishing fiduciary responsibility. I wonder if you could explain what you meant by that. This is with respect to the prudent man rule in establishing fiduciary responsibility. PRIVATE WELFARE AND PENSION PLAN LEGISLATION TUESDAY, APRIL 21, 1970 HOUSE OF REPRESENTATIVES, GENERAL SUBCOMMITTEE ON LABOR OF THE COMMITTEE ON EDUCATION AND LABOR, Washington, D.C. The subcommittee met at 10 a.m., pursuant to notice, in room 2257, Rayburn House Office Building, Hon. John H. Dent (chairman of the subcommittee) presiding. Present: Representatives Dent, and Bell. Staff Members Present: S. G. Lipman, special counsel, and Michael J. Bernstein, minority counsel. Mr. DENT. The General Subcommittee on Labor will now come to order for the purpose of holding hearings on H.R. 1045, 1046, 16462, and related bills regarding private pension and welfare plan legislation. This morning we are privileged to have with us E. S. Willis, Manager of Employee Benefits of the General Electric Co., speaking for the Chamber of Commerce of the United States, accompanied by Andrew Melgard. We welcome you here this morning. STATEMENT OF E. S. WILLIS, MANAGER, EMPLOYEE BENEFITS GENERAL ELECTRIC CO., SPEAKING ON BEHALF OF THE CHAMBER OF COMMERCE OF THE UNITED STATES, ACCOMPANIED BY ANDREW MELGARD, CHAMBER OF COMMERCE OF THE UNITED STATES Mr. WILLIS. My name is E. S. Willis. I am manager of Employee Benefits for the General Electric Co. I appear before this subcommittee as a witness for the Chamber of Commerce of the United States. I have served on a number of the chamber's committees in the employee benefits field. I have been active in several professional employee benefit groups, including the Council on Employee Benefits, the American Pension Conference, and Unemployment Benefit Advisors, Inc. In 1964 and 1967 I was one of the U.S. representatives to the International Labor Organization. Appearing with me is Andrew A. Melgard, a senior associate of the national chamber. Mr. Melgard serves as the committee |