Therefore, we are hoping that we can get an in-depth study started. We have to go into minimum wages soon. We consider that part of the wage package, too.

Mr. TYSON. An important part.

Mr. DENT. And we have the dubious honor of getting into the impact of imports on employment and wages next on our agenda. So that we are dealing with, I think, the most critical issues in the job economics of America at this time.

Mr. ERLENBORN. Might we solve most of these problems if we could legislate the employee benefit package for Japan?

Mr. DENT. No question, and I am going to do it, if you help me. Just as surely as we established for the first time in the United States a minimum wage for the whole 50 States in this committee, which was never known before we put it through, we might do that in the way that and I don't mind it going on the record-if they want to do business with us, they have to pay the freight. That is the way I feel. It may be wrong, but I am going to work toward that end.

Mr. Tyson, I hope you will keep yourself, or whomever you might designate, open for further interrogation and conversations on this subject, because I think we learn more from that than the statistical facts that are given.

Mr. TYSON. Mr. Chairman, I want to thank you and the members of the committee for the courtesy you have shown me and for the privilege you have permitted of having my associates and me here and I am sure we will all be willing to help you or any member of your committee in any way we can.

We appreciate the problems in your deliberations and your studies. We are also quite cognizant that it is your intention to have it the right way rather than any other way.

Mr. DENT. Thank you very kindly.

Mr. TYSON. We will be very glad to aid and assist in any way that we can.

Mr. DENT. Thank you.

(The following supplemental information was submitted for the record:)

PART I.-COMMENTS AND SUGGESTIONS BY U.S. STEEL ON SPECIFIC SUBSTANTIVE CHANGES TO THE WELFARE AND PENSION PLANS DISCLOSURE ACT AS PROPOSED IN H.R. 1046

1. Description of Plan (Section 6)

We believe a better understanding of a participant's rights would be provided by adding the following language with respect to reporting on Form D-1: "A description of the provisions providing for nonforfeitable pension benefits (if the plan so provides) written in a manner calculated to be understood by the average participant, and if the plan does not provide such benefits, a statement to this effect." This addition is from Section 6(b) of H.R. 16462.

Suggestion: We believe that Section 6(b) of H.R. 16462 should be incorporated in H.R. 1046.

2. Annual Reports (Section 7)

The substantive changes in this section call for:

(a) More detail on party in interest transactions (Section 7(f) (1) (C)), (b) A statement of aggregate purchases, sales, redemptions and exchanges of securities by type of security, showing purchase price or selling price. proceeds, cost and gain or loss (Section 7(f) (1) (D)),

(c) A statement similar to that in (b) above with respect to assets other than securities (Section 7(f) (1) (E)),

(d) A detailed listing of all loans and their terms (except with respect to certain federally insured mortgage loans and loans to plan participants when available to all participants on a nondiscriminatory basis and provided for in the plan) (Section 7(f) (1) (F)), and

(e) An annual audit of the employe benefit fund by an independent public accountant unless the books or records are presently subject to periodic examination by a State or Federal government agency (Section 7(h)).

Suggestion: We concur with changes in (a) and (e). Regarding (b), (c) and (d) we believe the provisions of the present law continue to be adequate. 3. Publication (Section 8)

The only change in this section is the reduction from two to one in the number of copies of the D-1 and D-2 required to be filed with the Secretary of Labor to which there is, of course, no objection. H.R. 16462 added a provision (Section 8(d)) that requires giving a participant, on written request, a statement of his accrued benefits (without regard to funding status) and whether or not such benefits are forfeitable. If they are forfeitable, the participant is to be advised when they may become nonforfeitable. The objective is commendable, but to avoid misleading those with forfeitable benefits, the computation of accrued benefits should be confined to those with nonforfeitable rights.

H.R. 16462 also added a requirement (Section 8 (e)) that all terminating participants with nonforfeitable rights be furnished a statement of their rights and privileges under the plan. This appears to be a worthwhile addition that should promote a better understanding by a participant of his rights.

Suggestion: In accordance with the above, we suggest adding to H.R. 1046 a provision comparable to Section S(d) of H.R. 16462, modified to limit the required pension calculations to those with nonforfeitable rights, and a section comparable with 8(e) of H.R. 16462. The accrual of forfeitable benefits is only on a group basis. There is, in fact, no other accrued benefit for individuals.

4. Enforcement (Section 9)

We concur with the objectives of this section of H.R. 1046 particularly the retention of the "reasonable cause" requirement. While preferring the technical language of other provisions incorporated in H.R. 16462, we suggest both bills should include a provision specifically requiring exhaustion of any available contractual remedies (e.g., grievance and binding arbitration procedures) as a condition precedent to bringing suit. This should be helpful in reducing the potential burden on the courts and would not upset established practices arrived at in collective bargaining.

5. Fiduciary Responsibility (Section 14)

We concur in the objectives of this section. In defining the "prudent man rule," the provision in H.R. 16462 refers to "a prudent man acting in a like capacity." This appears to be a very realistic approach since the objectives of a pension fund trustee may vary in certain respects from the objectives of other trustees. We generally prefer the technical language of H.R. 16462 with certain modifications, provided that the language does not give the Secretary the right to issue regulations to implement the prudent man rule definition. Suggestion: We recommend adopting Section 14 of H.R. 16462, excluding 14(f) and with the following modifications:

(a) Section 14(b) (2) lists some of the prohibited transactions by a fiduciary and includes the lease, sale or purchase of property if the transaction involves a party in interest, except as approved by the Secretary. If these transactions are at market value or otherwise capable of being demonstrated to be as fair as any other transaction which is at "arm's length," they should not require the Secretary's advance approval.

Suggestion: In light of the prudent man rule and full disclosure of all party in interest transactions, we suggest elimination of Section 14(b) (2) and expansion of Section 14 (c) (4) to permit, without prior approval of the Secretary, any transaction involving a party in interest which is for adequate consideration or otherwise is demonstrable to be like an "arm's length" transaction.

(b) Section 14 (c) (4) (A) limits pension fund investments in employer securities to 10% of the market value of the fund.

Suggestion: In light of the prudent man rule and full disclosure of all party in interest transactions, we suggest deletion of the 10% limitation.

(c) Section 14(g) says no fiduciary shall be relieved of any responsibility, obligation or duty under the Act by agreement or otherwise. This is too broad a statement and should be subject to Section 14 (e) which has limiting features.

Suggestion: Make Section 14(g) subject to Section 14 (e)

6. Prohibition Against Certain Persons Holding Office (Section 15)

The crimes listed in H.R. 1046 have also been included in H.R. 16462. However, the latter bill has expanded the list. The expansion appears appropriate. Suggestion: We recommend adopting Section 15 of H.R. 16462.

7. Administration (Section 17)

H.R. 16462 added a provision that the Secretary of the Treasury, or his delegate, must concur with all rules and regulations issued with respect to Section 14 and be consulted with respect to rules and regulations issued on the other sections. This seems appropriate.

Suggestion: We recommend adopting Section 17 of H.R. 16462.

8. Effect of Other Laws (Section 18)

H.R. 16462 states that the Act shall, with some exceptions, supersede any and all States laws regarding fiduciary, reporting and disclosure responsibilities with respect to employe benefit plans. This should be helpful.

Suggestion: We recommend adopting Section 18 of H.R. 16462.

9. Effective Date (Section 20)

H.R. 1046 makes the provisions effective upon enactment except for the reporting requirements of Section 7, which become effective upon issuance of implementing regulations or one year after enactment, whichever is sooner. If the extensive changes recommended become law, the effective dates in Section 20 of H.R. 16462 seem more realistic.

Suggestion: We recommend adopting the substance of Section 20 of H.R.

16462.

PART II

1. Description of the Plan (Section 6)

Section 6 appears to be designed to foster better understanding of employe benefit plan provisions by employes, and we endorse the contents of this section.

2. Annual Reports (Section 7)

(a) The substantive changes in Sections 7(a) and 7(b) include the following:

(1) An annual audit of the employe benefit fund by an independent certified or licensed public accountant (Section 7(a) (3)).

(2) More detail on party in interest transactions (Sections 7(b) (2) through 7(b) (7)).

(3) Schedule of all security investments, showing

(i)

(ii)

The aggregate cost and aggregate value of each security, by issuer; and

The aggregate cost and aggregate value of all other investments, separately identifying those in excess of $100,000 or 3% of the fund (Section 7(b) (2)).

(4) Schedule showing, by type of security, the aggregate purchases and sales of securities, listing each issuer (Section 7(b) (3)).

(5) Schedule showing, by type or category of asset, the aggregate information on purchases and sales of investment assets other than securities, separately identifying those in excess of $100,000 or 3% of the fund (Section 7(b) (4)).

(6) Schedule showing information on all loans made during the year or outstanding at the end of the year that are in default or in excess of $100,000 or 3% of the fund (Section 7(b) (5)).

(7) List of all leases in default or with a party in interest including detailed information on such leases (Section 7(b) (6)).

Suggestion: We have no objection to items (1) and (2), but would suggest continuation of the provisions of present law with respect to the other items since present law is adequate in these areas.

(b) Section 7(e) calls for actuarial and related information:

(1) Item (4) calls for "the present value of all liabilities for all nonforfeitable benefits and the present value of all other accrued liabilities". This would involve an expensive separate valuation by the actuary to determine the "accrued liability" for forfeitable benefits. This would be in addition to the regular valuation in the case of many companies who normally value their plans on an aggregate level cost method. This occurs because the unit credit (or step-rate) method of valuation must be employed to determine the present value of accrued benefits. Many employers presently compute the "accrued liability" for nonforfeitable benefits to satisfy Opinion #8 of the Accounting Principles Board.

Suggestion: To avoid unnecessary and costly duplications, it is suggested that Section 7(e) (4) be amended to require reporting only the present value of the "accrued liability" for nonforfeitable benefits. At the same time, add a new definition to Section 3 conforming to that used in APB Opinion #8 as follows: "The term 'present value of accrued liability for nonforfeitable benefits' means the present value, at the date of determination of the sum of (a) the benefits expected to become payable to former employes who have retired, or who have terminated service with nonforfeitable rights, at the date of determination; and (b) the benefits, based on service rendered prior to the date of determination, expected to become payable at future dates to present employes, taking into account the probable time that employes will retire, at the vesting percentages applicable at the date of determination."

(2) Item (5) is new and requires reporting the ratios that the market value and book value of reserves bear to "accrued liabilities"-both forfeitable and nonforfeitable.

Suggestion: Since disclosure of market value appreciation may lead to either a "performance fad" in pension investment decisions to the detriment of sound long-term investments, or to over-conservative emphasis on "safe" investments, we suggest that item (5) be limited to the ratio of book value reserves to total "accrued liabilities" for nonforfeitable benefits, provided book value in the aggregate is not more than market value. If market value is less than book value, market value should be used.

(3) Item (6) calls for filing a copy of the most recent actuarial report and a statement of actuarial assumptions. Present law permits a statement of the assumptions and methods used in determining the contribution in lieu of the actuarial report. Also requested are the actuarial assumptions used in determining contributions, benefits and any other information required by Section 7(e). If the assumptions differ, an explanatory statement is required.

Suggestion: Since actuarial reports differ in content, it is suggested that a statement of actuarial assumptions used be required and submit actuarial report only on request of the Secretary.

(4) Item (7) is new and requires a statement showing the number terminating employment, their length of service, the present value of total accrued benefits of those terminating and the present value of benefits forfeited. The present value information requested on forfeited benefits is confusing. Item (7) is obviously a fishing expedition-an effort to gather statistical information for other purposes. The costly present value computations are firmly opposed.

Suggestion: In the interest of limiting disclosure to that which is meaningful, delete item (7).

(5) Item (8) calls for such other information under Section 7(e) as the Secretary may by regulation prescribe. This raises a question as to why this "blank check" is confined to Section 7(e), except as it may be used for fishing expedition purposes. In any event, it gives the Secretary powers that are far too broad to justify.

Suggestion: Delete Section 7(e) (8). When necessary, the Secretary can require supporting schedules pursuant to Section 9(c).

3. Publication (Section 8)

(a) Section 8(b) reduces the number of copies of the Plan Description and the Annual Report filed from two to one. We endorse this change.

(b) Section 8 (c) permits an administrator for the first time to levy a rea sonable charge to cover the cost of furnishing a participant copies of the Plan Description or Annual Report. We endorse this change.

(c) Section 8(d) is new and requires, upon written request, that a participant or beneficiary be furnished a statement of the nonforfeitable pension benefits, if any, which have accrued to him, the earliest date benefits become nonforfeitable, and his total pension benefits accrued (but not necessarily funded), irrespective of whether or not forfeitable in accordance with regulations to be prescribed by the Secretary. This can be a nuisance item and the information can be misleading to nonvested participants who may, despite efforts to communicate otherwise, think they too have vested benefits. Suggestion: We endorse the foregoing requirements, as they relate to a pension calculation where benefits are nonforfeitable. The accrual of forfeitable benefits is only on a group basis. There is, in fact, no other accrued benefit for individuals.

(d) Section 8(e) is new and requires furnishing a statement to terminated vested employes concerning their rights and privileges under the plan. We endorse this change.

4. Enforcement (Section 9)

(a) Section 9(c) gives the Secretary of Labor the power, when he believes it necessary to determine whether the Act has been or is about to be violated, to make an investigation. The "reasonable cause" requirement in the present law and in H.R. 1046 has been deleted. The Secretary should have no trouble in demonstrating reasonable cause under this bill if an investigation is justified.

Suggestion: Reinstate the requirement that the Secretary must show reasonable cause before making an investigation and requiring additional disclosure. (b) Sections 9(e) through 9(i) deal with civil actions brought by participants or beneficiaries, making it easier to do by permitting class actions and by permitting the Secretary of Labor to bring suit to redress a breach of fiduciary responsibility. We endorse these changes, except for the suggestion below.

Suggestion: Add a provision to the law specifically requiring exhaustion of any available contractual remedies (e.g., grievance and binding arbitration procedures) as a condition precedent to bringing suit. This should be helpful in reducing the potential burden on the courts and would not upset established practices arrived at in collective bargaining.

5. Fiduciary Practices (Section 14)

(a) Section 14(b) (2) lists some of the prohibited transactions by a fiduciary and includes the lease, sale or purchase of property if the transaction involves a party in interest, except as approved by the Secretary. If these transactions are at market value or otherwise capable of being demonstrated to be as fair as any other transaction which is at "arms length", they should not require the Secretary's advance approval.

Suggestion: In light of the prudent man rule and full disclosure of all partyin-interest transactions, we suggest elimination of Section 14(b) (2) and expansion of Section 14 (c) (4) to permit, without prior approval of the Secretary, any transaction involving a party-in-interest which is for adequate consideration or otherwise is demonstrable to be like an "arms length" transaction.

(b) Section 14 (c) (4) (A) limits pension fund investments in employer securities to 10% of the market value of the fund.

Suggestion: In light of the prudent man rule and full disclosure of all partyin-interest transactions, we suggest deletion of the 10% limitation.

(c) Section 14(f) requires specific provisions for the disposition of fund assets upon termination. This required advance determination may not be in the best interest of participants and beneficiaries since conditions may be considerably different at time of termination. Present IRS requirements permit determination of distribution at time of termination. IRS provides adequate protection in this area.