Section 14. Fiduciary Responsibility

(1) To conform to the provisions of the Internal Revenue Code subsection (b) (1) (A) should read "for the exclusive benefit of the participants and their beneficiaries".

(2) The prohibitions contained in subsections (b)(2)(A), (B), (C), (D), (E), (G) and (H) do not appear in H.R.1046. Similar provisions contained in H.R.6498 (90th Congress) were deleted by the Subcommittee after lengthy hearings and due deliberation. Inasmuch as such deletion did not reduce the protection afforded to employees in view of the well established common law rules against favoritism, self-dealing or disloyalty by fiduciaries, we prefer H.R.1046 over H.R.16462 in this regard, and respectfully request that these limitations be deleted from this bill. If they are retained, the bill should at least provide for exemptions from the limitations insofar as banks are concerned with respect to transactions permitted by a federal or state banking supervisory agency.

We question whether a total prohibition of all transactions between employee benefit funds and related employers, employee organizations, or officials of either is necessary and suggest that consideration be given as to whether benefit funds are not sufficiently protected by requirements for adequate consideration and adequate security as presently contained in section 503 (c) of the Internal Revenue Code.

(3) Depending on the definition of loans as noted above in item (3) under Section 7, there may be an inconsistency between subsection (b)(2) (F) which prohibits loans to parties in interest and subsection (c) (4) (A) which permits the purchase of securities of an employer which do not exceed 10% of the fair market value of the fund.

(4) The statute of limitations in subsection (h) is longer than the one the ABA suggested with regard to H.R.1046, which it prefers.

Section 15. Prohibition Against Certain Persons Holding Office

As suggested with regard to H.R.1046, the banks should be excluded from this provision.

Section 17. Administration

As suggested in our statement to the Subcommittee on May 19, 1970, the power of the Secretary of Labor with the concurrence of the Secretary of Treasury to prescribe all necessary rules and regulations with respect to Section 14 should exclude from its purview the prudent man rule set forth in Section 14 (b) (1) (B).

Section 20. Effective Date

(1) The provision in subsection (a) allowing two years after enactment for compliance with the provisions of subsections (b)(3), (4) and (5) of Section 7 may not be long enough to permit some fiduciaries to make necessary changes in their computer or tabulating systems. It is suggested that the Secretary be given authority to extend this time limit.

(2) The effective date fixed in subsection (b) should be the beginning of the fiscal year which starts after the end of the first full fiscal year following promulgation of the forms. This time lag is necessary to give fiduciaries the time required to adjust computer and tabulating systems.

(3) Subsection (d) purports to give a fiduciary three years in which to dispose of "any investment, the retention of which would be deemed to be prohibited by this Article." We are in doubt as to the purpose and application of this provision. If it is intended to cover investments the retention of which would violate the prudent man rule, it is unnecessary and undesirable because fiduciaries should dispose of such investments within a reasonable time and three years may be too long or too short a period. If the fiduciary can reasonably dispose of such an investment prior to the expiration of three years from the date of the act, he should be compelled to do so, and, conversely, if the retention of such an investment beyond three years is prudent, the trustee should not be compelled to dispose of the investment, or obtain the consent of the Secretary to its further retention.

If the investments with which subsection (d) is intended to deal are those expressly restricted by Section 14(b) (2), we submit that the transactions cov

ered by those provisions are instantaneous in nature and not continuing, and that once a lease, sale, loan or other transaction under the provisions has been entered into, the retention of the investment should not and need not be restricted. Therefore, if subsection (d) is intended to cover such investments, we respectfully request that it be eliminated from the bill inasmuch as the retention of such investments could not be injurious to the trust (unless it were imprudent) and its forced disposition might be detrimental. In any event, as suggested in connection with H.R.1046, provision should be made for renewals, modifications or extensions of existing investments or agreements with the approval of the Secretary if such renewals, modifications or extensions are not otherwise permitted by the law.

Mr. HAWKINS. Again, Mr. Lackman, we would like to express our regret for not having reached you earlier. Thank you.

The committee will stand adjourned.

(Whereupon, at 10:45 a.m., the subcommittee recessed, to reconvene at 10 a.m. Wednesday, May 20, 1970.)

PRIVATE WELFARE AND PENSION PLAN LEGISLATION

WEDNESDAY, MAY 20, 1970

HOUSE OF REPRESENTATIVES,

GENERAL SUBCOMMITTEE ON LABOR

OF THE COMMITTEE ON EDUCATION AND LABOR,

Washington, D.C.

The subcommittee met at 10:10 a.m., pursuant to recess, in room 2261, Rayburn House Office Building, Hon. John H. Dent (chairman of the subcommittee) presiding.

Present: Representatives Dent, Gaydos, and Erlenhorn.

Staff Members Present: S. G. Lippman, professional staff assistant and Michael J. Bernstein, Minority Counsel for Education and Labor.

Mr. DENT. The General Subcommittee on Labor will now come to order for the purpose of holding and concluding hearings on H.R. 1045, H.R. 1046, H.R. 16462, and other related bills on private welfare and pension plan legislation.

This morning we are very privileged to have with us Mr. Robert C. Tyson, chairman of the Finance Committee, U.S. Steel Corp. Mr. Tyson, if you have anybody with you, bring them up with you. STATEMENT OF ROBERT C. TYSON, CHAIRMAN, FINANCE COMMITTEE, UNITED STATES STEEL CORP., ACCOMPANIED BY W. A. WALKER, VICE CHAIRMAN, FINANCE COMMITTEE, AND COMPTROLLER; AND B. L. RAWLINS, SECRETARY AND ASSISTANT GENERAL COUNSEL

Mr. TYSON. Good morning, Mr. Chairman.

Mr. DENT. Good morning. How are you, sir. You may proceed in any fashion you want. You may read your testimony, or summarize it, but the whole testimony will be included in the record at this point.

Mr. TYSON. Mr. Chairman, I have a prepared statement, and I would prefer, if I may, to read this statement, because I believe it covers many of the points, and perhaps will answer many questions that otherwise would come up.

Mr. DENT. That is all right, sir.

Mr. TYSON. I am very pleased to be here, and I thank you for the opportunity of appearing.

My name is Robert C. Tyson. I am chairman of the Finance Committee of U.S. Steel Corp. On my right is W. A. Walker, vice chairman of the Finance Committee and comptroller, and on my left is

B. L. Rawlins, secretary and assistant general counsel. I am also chairman of the Committee on Finance of U.S. Steel and Carnegie Pension Fund, a nonprofit membership corporation which is the trustee of our pension funds and Messrs. Walker and Rawlins are members of that committee.

I have appeared before previous House and Senate Committees on this all-important subject of proposed pension legislation, dating back to 1955, and I am happy to appear before your committee today to present the views of U.S. Steel on private pension plans. Your committee is to be congratulated for its in-depth study of this important subject.

After looking briefly at retirement practices in the United States and the purpose, nature and status of private pension plans in providing retirement security, I would then like to mention certain policies which we believe can foster the continued growth and development of such plans.

I will comment on those aspects of proposed pension legislation which we endorse, since they will foster the continued vigor of private pension plans. On the other hand, there are other aspects of proposed legislation which in our judgment would be detrimental to such plans, and I will also comment broadly on these.

Due to the limited time for oral comments, I have chosen to emphasize certain broad concepts and principles this morning-rather than specific legislative proposals. Following my prepared remarks, however, I would be happy to answer questions as to how this viewpoint would apply to specific legislative proposals. In addition, I would like to submit for the record a number of comments-some favorable and some unfavorable on the specific provisions contained in H.R. 1046 and H.R. 16462. (Supplementary statement A.) There is also a supplementary statement B, which may be of interest for the record, describing U.S. Steel's pension provisions in historical perspective; this statement illustrates and supports our belief that private pension plans generally are well-managed and are providing growing protection to employes under current laws.

RETIREMENT IN THE UNITED STATES

As your committe is well aware, elderly people in the United States are growing in number, and during this century have been growing in proportion to the total population. As a group, they now live longer than in times past, and they are accustomed to a higher standard of living than previously. Our economy is now organized so that a growing proportion of the elderly are living apart from their children, unlike past periods when the U.S. economy was more ruralized and the elderly frequently lived with their children.

Because of the above factors, coupled with the rising cost of living, interest in the subject of retirement income has heightened considerably during recent years. Today, retirement income is provided primarily from three sources: Social Security, private pensions, and individual savings each playing an important but inter-related role in retirement security. Each of these roles should be preserved and