expressed concern that the language in section 14 (b) exempts separate accounts from the fiduciary provisions. On the other hand, we have some concern that the exclusions in section 14 (b) do not cover certain types of traditional insured plans. These ambiguities are cleared up in the definitions in subsections (q) and (r) of section 3 of H.R. 16462 and we suggest, therefore, that this definition be incorporated in final legislation in lieu of the definition in H.R. 1046.

(f) Effective Date

H.R. 1046 provides generally that the new law shall take effect upon its enactment. However, the bill defers the effective date of the new reporting requirements until the Department of Labor issues implementing regulations (or until the expiration of one year, if sooner).

H.R. 16462 provides generally that the new law shall take effect 30 days after its enactment. However, it too has special rules for the new reporting requirements: Under section 20 (a), the provisions in subsection (b)(3), (4), and (5) of section 7 relating to the aggregating of items reported do not become effective for two years; while the other amendments to the reporting requirements do not become effective until the Department of Labor issues revised report forms. We have two comments on these effective date provisions:

First, we think it is important that some lead time be provided for implementing the new reporting requirements in order to allow time for the Department of Labor to promulgate the necessary regulations and forms and for the employee benefit plans to gear up for the new rules. Thus, we endorse the concept of both bills in this regard and believe that it would be reasonable to adopt the two-year rule in section 20 (a) of H.R. 16462 as the general effective date for all the new reporting requirements. If this suggestion is not considered feasible, then we would suggest that the reporting requirements not covered by section 20 (a) become effective with respect to plan years beginning after one year after the necessary regulations and forms are issued. This suggestion reflects the idea that, since the new reporting requirements involve reporting transactions taking place during the year, they should become effective as of the beginning of a reporting year and not in the middle of it. The one-year lead time allowed after the promulgation of the necessary regulations and forms would allow the plans time to gear up for the new reporting procedures.

Our second comment on the effective date concerns the two new statements which would be required under section 8 of H.R. 16462. Under section 8(d), the plan administrator is required to furnish an employee (if he so requests) with a statement as to his vested benefits under the plan. Under section 8(e) if an employee terminates his employment with vested rights under the plan, the plan administrator must furnish him a statement setting forth his rights and privileges under the plan. It is not clear from the language of section 20 of H.R. 16462 whether the furnishing of these two statements would be governed by the effective date rules applicable to the new reporting requirements. We believe, however, that there clearly should be a comparable delay in their effective date since both require implementing regulations by the Department of Labor. For example, the statement required by section 8(d) must indicate the employee's accrued benefits-a computation which, under certain plans, is to be made in the manner prescribed in Labor Department regulations (see section 3 (u) of H.R. 16462). Similarly, the statement required by section 8(e) is, by the express terms of this section, to be provided in accordance with Labor Department regulations. Thus, we urge that it be made clear that the effective date for these two new statements be in terms of plan years beginning after one year after the promulgation of the necessary regulations and forms.

II. H.R. 1045 THE PROPOSED PENSION BENEFIT SECURITY ACT

H.R. 1045 would establish minimum funding and vesting standards for private voluntary pension plans and would establish a new guarantee program to protect against the loss of vested but unfunded benefits resulting from plan termination. We recognize that considerable thought has been given already to many of the ideas embodied in this bill. However, we are of the opinion that the concepts involved are so complex, and their implications for private pension

plans so far-reaching, that the Subcommittee should proceed with the disclosure and fiduciary legislation, leaving any additional regulatory legislation to be the subject of further deliberations. We believe that the absence of concensus illustrated by the widely differing views offered by the various witnesses during the recent hearings, the interest expressed by Chairman Dent in further in-depth study of the problems involved in the fulfillment of pension expectations and, finally, the action taken by the Administration in initiating additional studies, all support this view.

In any continuing examination of legislation such as this, we urge that the Subcommittee keep in mind the importance of maintaining a vital and dynamic system of private pension plans. These plans, together with individual savings, insurance and Social Security, have the function of providing for the retirement needs of our aged population. For this purpose, private pension plans offer unique advantages. Building on top of the floor of protection offered by Social Security, they provide the means by which private enterprise, working through a voluntary system, can make desirable adjustments to suit the individual retirement needs of particular groups of employees in different firms, industries, labor unions, and geographical locations.

Private pension plans also have the advantage of being financed entirely through the private sector of the economy without the use of public money. Pension plan contributions are accumulated and invested through private financial institutions. In this process, the plans supply substantial amounts of the capital required for a growing dynamic economy. In every part of the country, a significant proportion of homes, office buildings, and industrial installations have been financed through pension funds-insured and uninsured. Figures set out earlier in this statement indicate the rapid growth of the private pension system. Moreover, although there is undoubtedly room for further improvement, the whole history of pension plans has been one of continued improvement over the years-in coverage, in vesting, in funding, and in benefit levels.

Private plans have a great potential for helping to meet the retirement needs of our citizens and every effort should be made to encourage their growth and development. This was recognized in the 1965 Report of the President's Committee on Corporate Pension Funds, on which H.R. 1045 is based. The Committee, though recommending far-reaching changes, explicitly recognized the value of these plans by stating ". . . public policy should continue to provide appropriate incentives to private plan growth. . . .”

Our associations advocate reasonable vesting and strong funding arrangements in private pension plans. We think this combination greatly improves the prospects that individual employees will ultimately realize their benefit expectations after retirement. But, however desirable voluntary vesting and funding may be, many people are not convinced of the wisdom of mandating vesting and funding by statute. Vesting accrued pensions adds substantially to costs. Adequate funding requires additional outlays in the short run. Therefore, while statutory reqirements for vesting and funding may improve the operation of a number of pension plans, the resulting cost may also inhibit both the establishment of new plans and the liberalization of existing plans. As to the proposed program for guaranteeing vested pension benefits, we have great reservations. It would, of course, be absolutely essential that any system of guarantees not come to be regarded as a substitute for adequate funding. There would also be intricate questions involving administration and equitable determination of risk as among the widely varying risks characteristic of different kinds of pension plans.

We believe that one reason for criticism of pension plans is that many covered employees do not really understand their rights under their particular plan. More meaningful disclosure can in many instances dispel such criticism. The Welfare and Pension Plan Act amendments under consideration by your Subcommittee are aimed at providing such disclosure as well as at providing additional protection for employee benefit funds, and we urge that they be made the first order of business.

STATEMENT OF THE AMERICAN RETAIL FEDERATION

This statement is presented on behalf of the 28 national retail associations and 50 state-wide associations of retailers comprising the American Retail

Federation. Through its association membership, the Federation represents approximately 800,000 retail establishments of all types and sizes.

GENERAL STATEMENT

The American Retail Federation believes that maximum encouragement should be given to the continued growth and expansion of private pension plans. The growth of these plans, both in benefit levels and dollar contributions, testifies to the ability of the present private pension system to foster sound pension programs. Governmental restrictions which would hamper the growth and expansion of such plans should be avoided.

One of the most important aspects of the private pension system is the assurance given to beneficiaries that the individuals who handle the large sums of money involved will exercise honest and sound judgment. Even though the evidence shows that most trustees are honest and capable fund administrators, the Federation supports a strong fiduciary responsibility bill along the lines set forth in H.R. 1046.

Other aspects of the legislative proposals on private pension plans have much more serious consequences. We oppose such concepts as mandatory vesting, funding, portability, and reinsurance, because they will have effects just the opposite of their intent. Far from assuring that the beneficiary will receive the pension he is entitled to receive, these proposals will limit the flexibility of private plans, stifle further growth, and add significantly to their cost. This is particularly true in the retail industry where a large portion of employees are part-time employees.

Fiduciary Responsibility

Administrators of pension funds should observe the highest standards of fiduciary responsibility. The Federation supports the proposed fiduciary responsibility provisions of H.R. 1046 because they would, in general, ensure that trustees meet these high standards.

However, we believe the bill could be improved if all of the following changes were adopted:

(1) The fiduciary responsibility section of H.R. 1046 adopts the "Prudent Man Rule." Section 14 of H.R. 1046 states that "each such fiduciary shall discharge his duties with regard to the fund with the same degree of care and skill as a man of ordinary prudence would exercise in dealing with his own property." It must be noted that the prudent man rule is difficult to apply in specific situations and that this rule does not mean that a fiduciary would be responsible for errors in judgment.

However, language of this nature is commonly found in trust instruments that are executed by individuals to handle their estates. A pension trust has different objectives and operates under different circumstances. H.R. 16462, a fiduciary responsibility bill introduced by the Administration, contains a prudent man rule more appropriate to a pension trust. It states: "A fiduciary shall discharge his duties with respect to the fund . . . with the care under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. . . ." H.R. 1046 should be modified to include this type of prudent man rule.

(2) H.R. 1046 permits the investment of plan assets in securities of the employer. In the case of pension plans the amount so invested when added to present holdings may not exceed 20% of the fair market value of the assets of the fund. The Administration bill has a similar section but the limitation is 10 percent. The Federation believes that in light of the strong prudent man rule no limitation is necessary on the purchase of employer securities. However, if such a limitation is needed, we prefer the 20 percent limitation in II.R. 1046.

(3) Both H.R. 1046 and H.R. 16462 provide that no contract can eliminate the personal liability of the trustees. The question arises who would want to serve as trustees under these conditions. It must be noted that the expense of proving innocence is on the trustee. Although we support H.R. 1046, we believe this bill could be improved if it is modified so that fiduciaries should be held personally responsible only for their own willful misconduct or gross negligence.

(4) Both the Administration bill and H.R. 1046 would bar persons convicted

of certain offenses from holding a responsible position with an employee benefit plan for five years. H.R. 1046 limits this prohibition to crimes that are related to: (1) activities which involve a wrongful taking of property, and (2) activities which are related to, and often occur in connection with the efforts of organized crime elements in the labor-management and securities fields. The Administration bill, however, would expand the prohibition to activities involving false statements in documents required by the Welfare and Pension Plan Disclosure Act, arson, violation of narcotics laws, and a number of other crimes. Individuals holding responsible positions in pension trusts must be of the highest character. The Federation favors prohibiting a person from holding office in a pension trust if he has been convicted of a violation of law where criminal intent is a necessary element of the crime and the crime is of such a vicious nature as to cast grave doubt upon the individual's responsibility. However, it should be made clear that inadvertant or technical errors in the filling out of disclosure documents are not the type of activities that would fall within this section.

(5) Under the provisions of H.R. 1046, the Secretary of Labor, any participant, or any beneficiary may bring a civil action to recover for a breach of responsibility or to enjoin violations. Actions may also be brought to remove a fiduciary. Under the Administration proposal, suits to redress breaches of duty by a fiduciary may be brought by a participant or beneficiary only as a representative in a class action. The participant or beneficiary would still be able to recover in individual suits benefits due to him and to obtain information required by the reporting sections of the bill.

The Federation favors limiting suits for breaches of a fiduciary duty to class actions, because there is a danger of unwarranted interference with the operations of the plan if every participant or beneficiary can bring individual actions. Since a class action suit can be brought only if there are questions of law or fact common to the class, permitting participants or beneficiaries to sue only as a class for breach of the fiduciary duty would tend to make it more difficult to bring suits based upon individual grievances unrelated to the fiduciary's overall responsibility.

The Federation prefers the provisions in H.R. 1046 to those in the Administration bill, in the following areas:

Disclosure

The Administration bill would require a report on the number of pension plan participants that forfeit their rights because they are not vested. Moreover, detailed lists of all investments "by issuer," as well as the separate investment over $100,000 or 3% are required.

In addition, the Administration bill would require an annual report to set forth an enormous amount of additional detail, which would add to the time and expense of administering a plan. More importantly, it would not further the objective of the legislation-honesty on the part of fiduciaries. It is difficult to see how a plan participant would be made more secure by requiring the administrator to file an immense amount of information which the participant could not understand. It is also highly questionable whether the Department of Labor would find the information useful.

Consequently, we support the disclosure provisions of H.R. 1046, which provide for adequate and meaningful disclosure without requiring burdensome and costly detail.

Investigations

H.R. 1046 provides that the Secretary of Labor shall have the power to conduct an investigation "when he has reasonable cause to believe investigation may disclose violations of this act." The requirement of "reasonable cause" properly limits the Secretary's investigative authority. On the other hand, H.R. 16462 is unnecessarily broad in giving the Secretary power to make an investigation "when he believes it is necessary to determine whether any person has violated or is about to violate any provision of this act. . . .” Under this broad power the Secretary might be able to unduly interfere with the management or conduct of a plan.

Vesting

H.R. 1045

The Federation will briefly comment on H.R. 1045 which provides for mandatory vesting, funding and reinsurance, without going into specific provisions.

Vesting provisions have increasingly been incorporated in private pension plans without the necessity of governmental intervention. Broader and sooner vesting might mean preemption of other forms of employee compensation that are perhaps more desired by employees-for example, higher wages, shorter hours, and greater vacation time.

The retail industry employs many part-time workers whose turnover rate is greater than career employees. Such employees normally are much more interested in wages and hours, than in retirement plans. This turnover problem with part-time workers is not only a question of prorities, but also of cost. Imposition of the vesting provisions in the bill would increase the cost of many pension plans. A high turnover rate could seriously deplete the assets of the fund and necessitate drastic increases in contributions. In a highly competitive industry with companies operating under a diversity of pension plans, higher contribution levels could alter the competitive relationships, especially for smaller firms.

As to the argument that early vesting will increase labor mobility, a recent Department of Labor study showed that seniority was a more important factor in labor mobility than the vesting requirements of a pension plan. Furthermore, retention of experienced and long-service employees in a business is a valid objective. The inducement of a larger pension benefit as an economic reward to individuals for continuing to work for a particular company is appropriate.

Funding

Prudent management chooses a pension program to meet the company's own need and the needs of the employees at a reasonable cost. Flexibility is the key to funding, as it is to overall plan design. The Internal Revenue Service has set up standards and most companies fund at a faster rate than required by the Internal Revenue Service. H.R. 1045 presents the danger of slowing down pension plan improvements, discouraging new plans from coming into existence, and driving old plans out of business.

Reinsurance

The problem of reinsurance is not an insurance question at all. First, there is not an insurable risk. Unlike the Federal Deposit Insurance Corporation which insures assets already placed in banks and other financial institutions, a reinsurance program for private pension plans seeks to insure assets not in existence that is, an undetermined amount of money to be paid into the plan in the future.

Second, under the bill a plan cannot receive insurance unless certain requirements are met; yet, if these requirements are met, it would seem that the plan does not need the insurance. Thus, reinsurance is impractical and unnecessary.

CONCLUSION

There is much to commend the present private pension system. To the extent that a fiduciary responsibility bill can add to strength of this system, the American Retail Federation supports H.R. 1046 with suggested modifications. On the other hand, the Federation opposes legislation on vesting, funding, portability and reinsurance. Destructive public policy can snuff out private pension plans. Solution through standardization appears to be founded on the premise that flexibility is a source of weakness in a private pension system. As we have seen, however, this very flexibility is in fact the source of its strength. Forcing private pension plans into such proposed funding and insurance patterns would be harmful to most employees, as well as their employers. Also, uniformity would have a stifling effect on the growth of private pension plans.

STATEMENT ON BEHALF OF ASSOCIATED BUILDERS & CONTRACTORS, INC.

AND W. L. GARDNER & ASSOCIATES, INC.

This statement is filed on behalf of Associated Builders & Contractors, Inc., and W. L. Gardner & Associates, Inc. Associated Builders & Contractors, Inc., is a non-profit organization of approximately 3,200 member firms located in approximately 20 states. It has established a private Pension Program through which many of the several thousand employees of its member firms are par