classified service, appoint as examiners one or more competent persons not employed by the trustees of such fund or interested in such fund. .. Any examiner authorized by the commissioner shall have convenient access at all reasonable hours to the books, records, files, assets, securities, and other documents of such employe welfare fund including those of any affiliated or subsidiary fund thereof, which are relevant to the examination. "(2) .. he may require the trustees or sponsoring employer to furnish him with a report of examination of such fund by a certified public accountant and reports by fund consultants in such form as he requires. "(3) In connection with any examination, the commissioner may, without regard to the classified service, appoint one or more competent persons as appraisers with authority to appraise any real property or any interest therein which, as security or otherwise, may constitute a part of the assets of any employe welfare fund. The report of such appraiser shall be a supplement to the report of the examiner in charge." The proposed legislation gives the Secretary of Labor broad power to make an examination at any time of the affairs of a fund. From what I have read about earlier suggested changes in federal legislation, it seems that a great deal of controversy exists as to when the Secretary of Labor should be authorized to make a fund investigation. I believe that broad powers of examination are essential to effective regulation. Since our fund examination program began in 1958, we have made about 1,300 fund examinations. Under our usual procedure. department examiners conduct examinations of "Taft-Hartley" funds. Most other funds are examined by certified public accounting firms in accordance with examination programs developed by our office and the Wisconsin Society of Certified Public Accountants. A copy of a typical recent examination report by one of our examiners is attached to this statement to show how we proceed. Recommendations in this report are described on pages 11 through 17 and summarized on page 18 of the report. Copies of correspondence with the trustees and their reply to our recommendations are included in the back of the report copy attached. ACTUARIAL STATUS Because the IRS regulations by minimizing allowable deductions encourage marginal funding standards and permit wide ranges in acceptable actuarial assumptions, we have had difficulty developing a method to determine the actuarial status of a fund and report such status to participants. I feel that the vesting and funding requirements proposed in HR 1045 are outside the scope of my competence. I have difficulty resolving in my mind the purpose of the private pension programs financed by employers through tax exempt trusts. Under our Wisconsin law we are required to develop an opinion on the actuarial status of a fund being examined. This opinion is included in the report to participants on each employer-operated fund examined so that each participant has understandable material explaining the actuarial status of his fund so he can determine the likelihood of fund assets being available in the future for benefits payable to him. We have developed two techniques to evaluate and interpret the actuarial status of a pension fund. We have a four page printed actuarial report form which must be completed and signed by the consulting actuary serving the fund. This form gives us information on actuarial methods used, assumptions and annual progress, if any, being made in funding the unfunded liability. Our review of this information permits us to determine that the employer is, or is not, following a program of making contributions sufficient to accumulate assets equal to the benefit liability of the fund. In our report to fund participants we describe our opinion of the actuarial status of the fund. In addition to this "funding progress" report, we have just adopted an additional report to clearly report to fund participants the present value at our examination date of benefits vested under their pension plan with the assets in the fund on that date available for payment of these vested benefits. Our procedures have been developed with the assistance and cooperation of a five member advisory committee made up of consulting actuaries serving funds in Wisconsin. I believe our system provides actuarial information to fund participants in a manner which they can understand and permits them to determine whether their employer is on a sound basis in funding their plan. WISCONSIN EXPERIENCE We have prepared the following tables summarizing information reported in 1967 and 1969 by those funds covering 26 or more Wisconsin employes, so as to provide your committee with information on the number and types of funds subject to the Wisconsin law. Number of funds.. Number of participants covered. Total assets in funds.. Total-all funds: Number of funds. Number of participants covered. Total assets in funds.. Funds located outside Wisconsin covering employes in Wisconsin and other States: 914 328,824 $466, 550, 593 313 402,056 $1, 104, 934, 372 404 7,868, 204 $24,970, 725, 504 1,631 8, 599, 084 $26, 542, 210, 469 1,082 386.178 $805, 423, 682 316 363,668 $1, 180, 644, 725 450 9, 005, 381 $31,843, 535, 608 1,848 9.755,227 $33, 829, 604, 015 An indication of the growth of funds filing annual statements under the Wisconsin law is shown in the following table. COMPARISON SELECTED DATA EMPLOYE WELFARE FUNDS FILING ANNUAL STATEMENTS, 1959-69 In addition to the funds reported on the preceding tables, at December 31, 1969 we had 3,538 funds registered with our office which covered fewer than 26 Wisconsin employes. These smaller funds were subject to all Wisconsin Statutes and Administrative Rules except the requirement that they file an annual statement. 3,104 of these funds, covering 27,976 participants on the date of initial registration, were located in Wisconsin and cover only Wisconsin employes. Each five years we contact every fund covering fewer than 26 Wisconsin participants to update the information filed with our office. It is not my intention in this presentation to discuss the significance of all of the information contained in the previous tables. However, it is worthy of comment that there are more than 1,000 registered funds having almost 400,000 participating employes that are strictly intrastate in nature. Wisconsin is a typical state--we usually represent the median in any statistical comparison or ranking of the 50 states. Therefore, on the average it would seem that the legislation under consideration would have an impact on approximately 50,000 intrastate pension and welfare funds covering 20 million employes. Also, a minimum of 150,000 funds covering 1.5 million employes would be exempt from all regulation and fiduciary standards. DEFINITION OF A FUND I would like to comment on the language defining a fund in both HR 1046 and HR 16462. My suggestion is that a fund subject to the law should be defined in more specific language. There is no problem in the case of employer established funds. A regular trust is established to conform to IRS regulations and a separate fund created. However, in union operated programs, the distinction is not so obvious. Here programs or funds are established for members, many in the nature of so called "sunshine funds" where a union designated committee may be responsible for certain benefit payments. In most cases assets are not separately maintained, but are recorded in a separate account on the union records. It would be advantageous to include specific language in your legislation to either include or exclude such a program. In Wisconsin we are revising the definition of a fund in our regulations to read: "A trust fund or other fund' subject to Chapter 211 exists where a trustee, a committee or other party is designated jointly by one or more employers together with one or more labor organization, solely by any employer or labor organization or joinlty by employers or jointly by labor organizations to operate an employe benefit program: (1) Under an agreement describing their responsibilities and duties, and (2) From monies under their control specifically segregated for that program." RECIPROCITY IN HEALTH AND WELFARE FUNDS One problem we have had in Wisconsin which may not even be a matter of concern for the federal government is the tendency of some Taft-Hartley type building trades funds to limit eligibility for coverage to members of unions in a given geographic area. Thus if a building trade union member, because of lack of work in his home area, or for any other reason, works temporarily in the area served by another building trades welfare fund, he can lose eligibility for the group life, hospital and surgical insurance provided by his regular home fund and not obtain coverage in the fund serving the area of his temporary employment. Two alternatives were available to the Commissioner in attempting to resolve this problem. One alternative would have been to obtain legislation requiring reciprocity and the other alternative would have been to attempt to obtain reciprocity by voluntary action. In 1967 former Commissioner Haase decided to try the second course of action first and appointed a 17 member Study Committee on Welfare Funds Reciprocity with equal members from the unions and employers involved in this area, with one public member. This Committee has developed information on reciprocity between funds in Wisconsin and served to encourage action on the problem by individual funds. We are satisfied that good progress is being made and that the reciprocity problem is being solved on a voluntary basis in Wisconsin. COMPLAINTS AND INQUIRIES OF FUND PARTICIPANTS The other area I want to discuss concerns complaints and inquiries from participants. I do not agree with the philosophy that any fund participant with a complaint should be limited to contacting either a lawyer or his employer, if it is an employer operated trust, or his union, if a jointly-administered trust. Our experience indicates that both fund participants and fund trustees can be helped when a governmental agency can be contacted on complaints. Our experience also indicates that fund participants expect a regulating agency to accept and handle their complaints and inquiries. In addition to legal action, any participant can write, telephone, or stop in at our offices in Milwaukee or Madison, Wisconsin and request the information he desires on his fund. On receiving such an inquiry we take such action as is required to obtain the information and resolve any question or error. Where the trustees have erred, we see that correction is made; when an error has not been made, we explain the plan provisions to the participant so if he so desires, he can consult an attorney on the advisability of legal action. During the first few years when our law was in effect, we received very few inquiries, an average of one letter a month. As public awareness of our jurisdiction has increased, so have complaints. We still do not have a great volume-an average of about 200 to 250 per week, but we anticipate a great expansion in this phase of our work. I might add that we see a great increase in policyholder complaints and inquiries in the insurance regulation activities in my office. I believe that receiving and responding to consumer complaints, whether in the insurance area or employe welfare and pension funds area, is an important function of regulation. I also believe that this task would be most difficult for a federal agency because of the volume and variations in complaints that would be generated in each of the 50 states. In the employe welfare and pension fund field, each complaint must be handled by reviewing the specific plan and trust agreement covering the inquiring participant. Knowledge of local situations such as employer financial difficulties, mergers, local employment conditions, etc. is almost essential in a proper handling and disposition of a fund participant's complaint. I firmly believe that this governmental service needs to be performed at a lower level of government than that domiciled in Washington, D.C. Our experience also confirms that these complaints are more likely to come from participants of the small or medium size fund than from the larger fund where a fully staffed personnel department is available. Also, the trustees of smaller funds are frequently not aware of their trustee responsibilities. Copies of the original inquiry on the 20 most recent complaints on our register are attached to this statement. We have deleted any identification from these complaints to eliminate any possible problem to the participant from his employer or union. Of these 20 complaints from Wisconsin residents, 14 arise from funds covering Wisconsin employes only, one from a fund located in Wisconsin but interstate in nature, and three from funds located in other states. We have written the complainant for more information on the remaining two inquiries as we have been unable to identify the plan they describe as any filed in our office. We will be happy to make our complete file on these complaints available to members of your committee or staff if you are interested in how we have resolved these inquiries. THE NEGATIVE EFFECT OF THE PRE-EMPTION OF STATE AUTHORITY Section 19 of HR 16462 states: "It is hereby declared to be the express intent of Congress that except for actions authorized by section 9 (e) (1) (B) of this Act, the provisions of this Act shall supersede any and all laws of the States and of political subdivisions thereof insofar as they may now or hereafter relate to the fiduciary, reporting and disclosure responsibilities of persons acting on behalf of employe benefit plans. . . ." If such provisions are enacted into the law, the citizens of Wisconsin will be subject to a drastic decrease in the fund regulation as follows: (1) Funds covering fewer than 26 participants will be eliminated from any state or federal fiduciary regulations and/or trust laws. (2) Funds will not be subject to regular examinations on a systematic basis. Examination reports will not be published to participants. We have conducted over 1,300 examinations since our law was enacted in 1957. (3) Fund participants will not be able to resolve complaints and inquiries involving their fund by writing to a responsible official of the regulatory agency. (4) The actuarial status of pension funds and allied enforcement proceedings will not be determined by a responsible government official. (5) The authority to order employers to stop making contributions to a fund in violation of law will not be vested in any administrative official in the regulatory system. (6) In the case of fund depletion, there will be no local mechanism for holding hearings and implementing corrective action. (7) The State of Wisconsin will no longer be able to take action to obtain an injunction restraining any person from doing acts in violation of law. (8) The specific prohibition of law forbidding all political contributions, directly or indirectly, from any fund will no longer be in effect. (9) Copies of fund documents and provisions will not be on file in a local readily accessible office for review by participants and assisstance in resolving questions they have. (10) Information on fund names and officials will not be available in a local office so participants or attorneys can determine the names and addresses of responsible officials for contact in connection with resolution of problems. CONCLUSIONS The Wisconsin experience in effectively administering a comprehensive employe welfare fund law for the past 13 years leads me to the following conclusions: 1. The Wisconsin system of regulation is effective and provides a needed service to fund trustees, employers, unions, and fund participants. 2. Federal legislation should not take from Wicsonsin citizens the substantial benefits of the Wisconsin regulatory system and substitute less regulation less effectively administered from a central location far removed from the people most directly effected. 3. The regulation of employe pension and welfare funds is a difficult governmental venture because of the great number of and dissimilarity between funds. In my opinion the several states can and should provide at least a very substantial part of the regulation. 4. Resolving participant inquiries is an essential part of regulating the funds and would become a massive operation for any federal government agency assigned to such regulation. This is a governmental service more easily provided at the state level than the federal level. 5. There is merit in having federal legislation in certain enforcement areas that normally would be beyond the effective reach of the states. An example might be a multi-state scheme for misappropriation of assets or similar criminal activities. 6. It would be a grievous error for federal legislation to prohibit the several states from regulating those funds that would be exempt from federal regulation. No fund should be entirely free from regulation. 7. The states and the federal government should cooperate in the regulation and supervision of employe pension and welfare funds. Appropriate areas of jurisdiction should be developed through joint effort of the states and the federal government. 8. The option for the assertion of state regulation and control should be given to each state since such regulation would be most effective and most economical. Thank you for this opportunity to appear before you. I will be happy to try to answer any questions you may have on our Wisconsin law or operations. WISCONSIN COMMISSIONER OF INSURANCE EXAMINATION REPORT HON. ROBERT D. HAASE, COMMISSIONER OF INSURANCE, STATE OF WISCONSIN, MADISON, WIS. SEPTEMBER 4, 1969. SIR: In accordance with your appointment dated May 5, 1969, we have made an examination of the Kenosha Building and Construction Trades Welfare Fund, Kenosha, and the methods and practices by which this fund conducts its business. The examination primarily covered operations during the year ended August 31, 1968, but also included a review of transactions since the period covered by our last examination, August 31, 1962. The scope of our examination was such as to become familiar with current fund operations and to establish that the conditions and affairs of the fund for the year ended August 31, 1968 were correctly reported on the 1968 annual statement filed with the Office of the Commissioner of Insurance. We also made limited tests of detailed records of the fund. |